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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by rule
[ ] 14a-6(e)(2)) Definitive Proxy Statement Definitive Additional Materials
[ ] Soliciting material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Nuevo Energy Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) filing Information Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transactions applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per Unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule of Registration Statement No.:
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4) Date Filed:
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April , 1999
NOTICE OF ANNUAL MEETING
Dear Fellow Stockholder,
You are cordially invited to attend the Annual Meeting of Stockholders
of Nuevo Energy Company which will be held at the Four Seasons Hotel, 1300
Lamar, Houston, Texas, on Wednesday, May 12, 1999 at 9:00 a.m. local time.
At this annual meeting you will be asked to vote on the following
matters:
1. to elect three members to our board of directors;
2. to approve three amendments to our certificate of
incorporation and one amendment to our bylaws;
3. to approve the 1998 non-executive employee stock
purchase plan;
4. to approve the 1999 stock incentive plan;
5. to ratify the selection of our 1999 auditors; and
6. to conduct any other business which is properly raised at the
meeting.
The attached proxy statement provides information concerning the
matters to be voted on at this meeting. I am particularly proud of the corporate
governance principles adopted by our board of directors in 1998 and I encourage
you to read them carefully. I believe these principles fully align management's
efforts with the interests of our stockholders. The Annual Report to
Stockholders for 1998 is also being mailed to stockholders along with these
proxy materials. Our proxy materials are being sent to stockholders on April ,
1999.
It is important that your shares be represented at the annual meeting,
regardless of the size of your holdings. We urge you to return the signed proxy
in the enclosed envelope as soon as possible. If you do attend the annual
meeting in person, you may withdraw your proxy and vote your stock at the
meeting. We value your opinions and encourage you to participate in the annual
meeting by voting your proxy.
We have adopted the SEC's "plain English" drafting principals in
writing our proxy statement this year. This was done to make our proxy materials
easier to understand which we hope will enable you to make the best informed
decision possible.
Thank you for your continued support and interest in Nuevo Energy.
Very truly yours,
/s/ Douglas L. Foshee
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'
<TABLE>
<CAPTION>
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TABLE OF CONTENTS: PAGE
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<S> <C>
Questions and Answers................................................................... 3
Beneficial Ownership of Our Common Stock................................................ 6
Our Corporate Governance Principals..................................................... 8
Proposal I. Election of Directors............................................... 13
Executive Compensation.................................................................. 21
Proposal II. Amendments to Our Certificate of Incorporation and Bylaws........... 27
A. Declassification of the Board of Directors.......................... 27
B. Deletion of Business Combination Provisions......................... 27
C. Right to Amend the Bylaws........................................... 28
Proposal III. Approval of Our 1998 Non-Executive Employee Stock Purchase
Plan................................................................ 29
Proposal IV. Approval of Our 1999 Stock Incentive Plan........................... 31
Proposal V. Ratify the Selection of Our 1999 Auditors........................... 34
</TABLE>
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QUESTIONS AND ANSWERS:
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WHO IS ASKING FOR MY PROXY?
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Your proxy is being solicited by our board of directors for use at our 1999
annual meeting of stockholders. Our directors and officers, and our proxy
solicitation firm, MacKenzie Partners, may also solicit proxies on behalf of our
board of directors, in person, or by telephone, telefax or mail. We expect that
the total compensation of MacKenzie Partners will be less than $7,500. If our
directors, officers or employees solicit proxies they will not be specially
compensated. Nuevo will pay all costs and expenses of this proxy solicitation.
WHAT ARE STOCKHOLDERS BEING ASKED TO VOTE ON?
-----------------------------------
At our 1999 annual meeting, stockholders will be asked to vote:
o to elect three persons to serve on our board of directors;
o to amend our certificate of incorporation and bylaws:
- to remove the sections providing for a classified
board of directors so that all of our directors are
elected annually;
- to remove the sections which require an 80% vote to
approve certain types of business combinations; and
- to add a provision which permits the board of
directors to amend our bylaws.
o to approve a stock purchase plan for our non-executive
employees;
o to approve a 1999 stock incentive plan; and
o to ratify the selection of KPMG LLP as our independent
auditors for 1999.
HOW DO I VOTE MY SHARES?
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A proxy card is included with the materials being sent to stockholders with
these proxy materials. If the proxy card is properly signed and returned to us,
shares covered by the proxy card will be voted in accordance with the directions
you specify on the card. Shares covered by a properly signed proxy card which
does not specify how to vote the shares will be voted for the election of the
director nominees named in this proxy statement and in favor of the other
proposals described above.
If any matters other than those described above are raised at the annual
meeting, the proxy card gives the proxies the right to vote for or against such
matter in their discretion. At the date of this proxy statement, we do not know
of any matters to be presented at the annual meeting other than those described
herein.
WHAT VOTE IS REQUIRED?
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Under Delaware law, we cannot conduct business at the annual meeting unless a
quorum is present. A quorum will be present if a majority of our outstanding
shares of stock on the record date is present at the meeting in person or by
proxy. If a quorum is present,
o directors are elected by a plurality vote, which means that
the three director nominees receiving the most votes will be
elected;
o the amendments to the certificate of incorporation to
declassify our board and to change the vote required to effect
certain business combinations require the affirmative vote of
holders of 80% or more of the shares outstanding on the record
date;
o the amendment to the certificate of incorporation allowing the
board of directors to amend the bylaws requires the
affirmative vote of holders of a majority of the shares
outstanding on the record date; and
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o approval of the non-executive employee stock purchase plan,
the 1999 stock incentive plan and the ratification of auditors
requires the affirmative vote of the holders of a majority of
the shares present, in person or by proxy, at the meeting.
With respect to the election of directors, you may (i) vote for the election of
all three director nominees, (ii) withhold authority to vote for all director
nominees or (iii) withhold authority to vote for any director nominee by so
indicating in the appropriate space on the proxy card. Our stockholders do not
have the right to cumulate votes in the election of directors.
WHAT IS THE EFFECT OF AN ABSTENTION OR A BROKER NON-VOTE?
-----------------------
You may mark "abstain" on your proxy card for any of the matters submitted to a
vote. An abstention is the equivalent of a no vote on all matters.
Many of our shares are held in "street name" which means that a depository,
broker-dealer or other institution holds shares in its name which are
beneficially owned by another person. The rules of the New York Stock Exchange
provide that a street name holder must receive the direction of the beneficial
owner of the shares to vote on issues other than routine stockholder matters
such as the election of directors. A "broker non-vote" refers to a proxy which
votes on one matter, such as the election of directors, but indicates that the
holder does not have the authority to vote on other matters. Broker non-votes
will have the following effects at our annual meeting:
o For purposes of determining whether a quorum is present under
Delaware law, a broker non-vote is deemed to be present at the
meeting.
o For purposes of the election of directors and the amendments
to our certificate of incorporation and bylaws, a broker
non-vote is the equivalent of a no vote.
o For purposes of the other matters to be voted on at the
meeting, a broker non-vote will not be counted.
In addition, the New York Stock Exchange (NYSE) rules require that our 1999
stock incentive plan be approved at a meeting at which at least 50% of the
shares entitled to vote are present. For NYSE purposes, broker non-votes are not
deemed to be present at the meeting. As a result, if the number of broker
non-votes plus the number of shares not represented at the meeting is greater
than a majority, our 1999 stock incentive plan will not be approved.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE?
------------------------------
The board of directors unanimously recommends that you vote to Approve each of
the matters to be voted on at the annual meeting.
HOW MANY SHARES MAY VOTE AT THE ANNUAL MEETING?
---------------------------------
The only stock with the right to vote at the meeting is our common stock, and
only shares owned on the record date may by voted at the meeting. Each share of
common stock is entitled to one vote on each matter voted on at the annual
meeting. On the record date, there were shares of common stock
outstanding.
WHAT IS THE RECORD DATE?
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April 5, 1999 .
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WHY HAVE YOU ADOPTED CORPORATE GOVERNANCE PRINCIPLES?
---------------------------
In 1997, our chairman and chief executive officer committed to the investment
community that Nuevo would become a leader in Corporate Governance. As a result,
several important initiatives were undertaken, including an exhaustive review of
our governance principles. The board felt it important for our shareholders and
other interested parties to know exactly where we stand on the important issues
surrounding the proper governance of a public company. We believe that the
principles adopted unanimously by the board and published in this proxy do in
fact make us a leader in corporate governance and that adhering to these
principles will help us provide superior returns to our shareholders.
CAN I REVOKE MY PROXY?
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Yes. You may revoke your proxy at any time before a vote is taken in any of the
following ways:
o attend the annual meeting and vote in person;
o submit a proxy with a later date; or
o notify our corporate secretary in writing that you wish to
revoke your proxy.
Our corporate secretary's name and address is Sandra Kraemer, 1331 Lamar, Suite
1650, Houston, Texas 77010, and her phone number is (713) 756-1781.
HOW DO I NOMINATE A PERSON FOR MEMBERSHIP ON THE BOARD OF DIRECTORS?
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Our certificate of incorporation and bylaws require that stockholders notify us
of their intent to nominate directors for the annual meeting in 2000 prior to
January 13, 2000. The nomination should be in writing and addressed to our Board
of Directors c/o Nuevo Energy Company, 1331 Lamar, Suite 1650, Houston, Texas
77010 with a copy to our president and secretary. The nomination must contain
the name and address of the nominee and describe his or her qualifications for
being a director. All nominations will be forwarded to our nominating and
governance committee who will make a recommendation to the board of directors
concerning nominations for director.
WHEN ARE PROPOSALS BY SHAREHOLDERS
FOR THE 2000 MEETING DUE?
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Proposals to be included in our proxy, other than nominations for director, must
be received by us on or before December , 1999. Such proposals should be
addressed to Nuevo Energy Company, 1331 Lamar, Suite 1650, Houston, Texas 77010
Attention: corporate secretary. In order to avoid any controversy as to the date
you deliver notice to us, you should consider using registered mail, return
receipt requested. Under the SEC's rules, we are not obligated to include all
proposals made by stockholders in our proxy statement.
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BENEFICIAL OWNERSHIP OF OUR COMMON STOCK:
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The following tables show the ownership of our common stock by (i)
anyone who is know by us to beneficially own 5% or more of our outstanding
common stock, (ii) each of our non-employee directors, (iii) our five most
highly compensated executive officers, and (iv) all of our executive officers
and directors taken together as a group. Unless otherwise indicated, each person
named in the following table has the sole power to vote and dispose of the
shares listed next to their name. Information in the tables has been obtained
from filings made with the SEC or, in the case of our directors and executive
officers, has been provided by such individuals. Unless otherwise indicated, the
information provided below is based on information available to us as of the
record date.
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OUR 5% STOCKHOLDERS:
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<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
---------------- -------
<S> <C> <C>
Franklin Resources, Inc. 2,781,639 13.1(1)
777 Mariners Island Blvd.
San Mateo, California 94404
Relational Investors, LLC
David H. Batchelder 1,914,300 9.6(2)
Joel L. Reed
Ralph V. Whitworth
Suite 220
4330 La Jolla Village Drive
San Diego, California 92122
State Street Research & Management Company 1,482,700 7.5(3)
One Financial Center, 30th Floor
Boston, Massachusetts 02111
Crabbe Huson Group, Inc. 1,039,400 5.2(4)
121 SW Morrison, Suite 1400
Portland, OR 97204
</TABLE>
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MEMBERS OF OUR BOARD OF DIRECTORS WHO ARE NOT EMPLOYEES:
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
----------------------------
UNDER STOCK
OUTSTANDING OPTIONS** TOTAL PERCENT
----------- ---------- ----- -------
<S> <C> <C> <C> <C>
Isaac Arnold, Jr...................... 40,820(5) 52,500 93,320 *
David H. Batchelder................... 1,914,300(2) -- 1,914,300 9.6
Thomas D. Barrow...................... 30,800(6) 52,500 83,300 *
Charles M. Elson...................... 2,778 7,500 10,278 *
Robert L. Gerry III................... 6,500 272,500 279,000 1.4
Gary R. Petersen...................... 2,500 15,000 17,500 *
David Ross III........................ 10,000 7,500 17,500 *
Robert W. Shower...................... 10,000 7,500 17,500 *
</TABLE>
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OUR EXECUTIVE OFFICERS:
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<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
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UNDER UNDER
UNDER STOCK DEFERRED RESTRICTED
OUTSTANDING 401(K) PLAN OPTIONS** COMPENSATION STOCK TOTAL PERCENT
----------- ----------- --------- ------------ ---------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas L. Foshee............. 5,100 8,134 435,000 15,214 -- 463,448 2.3%
Michael P. Darden............. -- 1,839 25,000 5,317 -- 32,156 *
Robert S. Gaston.............. 5,726(7) 1,940 70,000 11,059 2,000 90,725 *
Dennis A. Hammond............. 428 2,431 81,855 12,394 4,000 101,108 *
Robert M. King................ 3,684(8) 1,802 69,650 11,441 4,000 90,577 *
</TABLE>
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ALL DIRECTORS AND EXECUTIVE OFFICERS TOGETHER:
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<TABLE>
<CAPTION>
TOTAL PERCENT
---------------- -----------------
<S> <C> <C>
3,210,713 16.2%
</TABLE>
Footnotes:
* Under 1%.
** Stock options include only options which may be exercised within 60 days.
(1) Of the shares reported for Franklin Resources, Inc., Franklin Advisers,
Inc. is reported to have sole voting power over 2,427,139 shares and
Franklin Advisors Services, Inc. has sole voting power over 94,000. In
addition, Franklin Advisers, Inc. is reported to have sole dispositive
power over 2,427,139 shares and Franklin Advisers Services, Inc. is
reported to have sole dispositive over 354,500 shares. Franklin Advisers,
Inc. and Franklin Advisers Services, Inc. are both wholly owned investment
advisory subsidiaries of Franklin Resources, Inc. Each of Messrs. Charles
B. Johnson and Rupert H. Johnson, Jr. own in excess of 10% of the
outstanding common stock of Franklin Resources, Inc. As the principal
shareholders of Franklin Resources, Inc., each of Messrs. Charles B.
Johnson and Rupert H. Johnson, Jr. may be deemed for certain purposes to be
beneficial owners of the shares beneficially owned by Franklin Resources,
Inc. Shares beneficially owned by Franklin Resources, Inc. include
1,338,939 shares which may be received upon conversion of our outstanding
term convertible securities ("TECONS").
(2) Relational Investors, LLC, reported sole dispositive and voting power with
respect to all 1,914,300 shares. These shares are owned by an account
managed at Relational Investors, LLC and by the following limited
partnerships of which Relational Investors, LLC is the sole general
partner: Relational Investors, L.P., Relational Fund Partners, L.P.,
Relational Coast Partners, L.P. and Relational Partners, L.P.. Each of
Messrs. Batchelder, Whitworth and Reed are managing members of Relational
Investors, LLC, and may be deemed for certain purposes to beneficially own
shares beneficially owned by Relational Investors, LLC.
(3) State Street Research & Management Company ("State Street") is an
investment adviser registered under the Investment Advisers Act of 1940.
State Street has sole dispositive power with respect to all 1,482,700
shares and sole voting power with respect to 1,373,800 shares. In its
report filed with the SEC, State Street disclaims any beneficial interest
in such shares.
(4) Crabbe Huson Group, Inc. is a registered investment advisor. It does not
directly own any shares of our common stock. Crabbe Huson Group reported
the shared power to vote 941,500 shares of common stock and the shared
power to dispose of or direct the disposition of 1,039,400 shares.
(5) Includes 5,820 shares owned indirectly by The Arnold Corporation, of which
Mr. Arnold owns an approximate 25% equity interest.
(6) Includes indirect ownership of 6,200, shares owned by individual
retirement accounts for Mr. Barrow and his wife, his minor children or a
corporation he controls.
(7) Includes 200 shares owned by Mr. Gaston's spouse and 2,526 shares that
would be received upon conversion of 3,000 convertible preferred shares.
(8) Includes 1,684 shares of common stock that would be received upon
conversion of 2,000 convertible preferred shares.
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OUR CORPORATE GOVERNANCE PRINCIPLES:
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Upon his appointment as Chief Executive Officer in August 1997, Mr.
Foshee committed publicly to our stockholders and to the investment community
that the our management and board of directors would immediately begin the
process of reviewing our corporate governance principles. In 1998, our board of
directors established a nominations and governance committee whose members are
David Ross III, who acts as Chairman, Charles M. Elson and Robert W. Shower.
In 1998 the nominations and governance committee recommended, and the
full board of directors adopted, the "Nuevo Energy Company Corporate Governance
Guidelines." These guidelines have been published in order to inform
stockholders of the board's current thinking with respect to selected corporate
governance issues. The board will continue to assess the appropriateness and
efficacy of the guidelines, and it is likely that changes to the guidelines will
be considered from time to time.
BOARD MISSION & OBJECTIVES
Mission Statement
The company's primary objective is to maximize stockholder value, while
adhering to the laws of the jurisdictions wherein it operates and at all times
observing the highest ethical standards. The company will pursue this objective
primarily through participation in the energy industry.
Corporate Authority & Responsibility
All corporate authority resides in the board of directors as the
representative of the stockholders. Authority is delegated to management by the
board in order to implement the company's mission. Such delegated authority
includes the authorization of spending limits and the authority to hire
employees and terminate their services. The board retains responsibility to
recommend candidates to the stockholders for election to the board of directors.
The board retains responsibility for selection and evaluation of the CEO,
oversight of the succession plan, determination of senior management
compensation, approval of the annual budget, assurance of adequate systems,
procedures and controls, as well as assisting in the preparation and approval of
the strategic plan. Additionally, the board provides advice and counsel to
senior management.
DIRECTORS
Personal Characteristics & Core Competencies of Directors
Individual directors should possess all of the following personal
characteristics:
Integrity and Accountability - Character is the primary consideration
in evaluating any board member. Directors should demonstrate high
ethical standards and integrity in their personal and professional
dealings and be willing to act on and remain accountable for their
boardroom decisions.
Informed Judgment - Board members should have the ability to provide
wise, thoughtful counsel on a broad range of issues. Directors should
possess high intelligence and wisdom and apply it in decision making.
Financial Literacy - One of the important roles of the board is to
monitor the company's financial performance. Board members should be
financially literate. Directors should know how to read a balance
sheet, income statement, cash flow statement, and understand the use of
financial ratios and other indices for evaluating company performance.
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Mature Confidence - The board functions best when directors value board
and team performance over individual performance. Openness to other
opinions and the willingness to listen should rank as highly as the
ability to communicate persuasively. Board members should approach
others assertively, responsibly and supportively and raise tough
questions in a manner that encourages open discussion.
High Performance Standards - In today's highly competitive world, only
companies capable of performing at the highest levels are likely to
prosper. Board members should have a history of achievements that
reflect high standards for themselves and others.
Passion - Directors should be passionate about the performance of the
company, both in absolute terms and relative to its peers. That passion
should manifest itself in engaged debate about the future of the
company and an esprit de corps among the board that both challenges and
inspires the company's employees.
Creativity -Success in the energy business will ultimately go to the
participants who adapt quickly to changing environments and implement
creative solutions to the significant challenges faced by industry
participants. Board members should possess the creative talents needed
to augment those of management.
Core Competencies of the Board as a Whole
To adequately fulfill the board's complex roles, from overseeing the
audit and monitoring managerial performance to responding to crises and
approving the company's strategic plan, a host of core competencies need to be
represented on the board. The board as a whole should possess the following core
competencies, with each member contributing knowledge, experience and skills in
one or more domains.
Accounting and Finance - Among the most important missions of the board
is ensuring that stockholder value is both enhanced through corporate
performance and protected through adequate internal financial controls.
The board should have one or more directors with specific expertise in
financial accounting and corporate finance, especially with respect to
trends in debt and equity markets.
Business Judgment - Stockholders rely on directors to make sensible
choices on their behalf. The majority of directors should have a record
of making good business decisions in the corporate sector.
Management - To monitor corporate management, the board needs to
understand management trends in general and industry trends in
particular. The board should have one or more directors who understand
and stay current on general management "best practices" and their
application in complex, rapidly evolving business environments.
Crisis Response - Organizations inevitably experience both short and
long-term crises. The ability to deal with crises can minimize
ramifications and limit negative impact on firm performance. Boards
should have one or more directors who have the ability and time to
perform during periods of both short-term and prolonged crises.
Industry Knowledge - Companies continually face new opportunities and
threats that are unique to their industries. The board should have one
or more members with appropriate and relevant industry-specific
knowledge.
International Markets - To succeed in an increasingly global economy,
the board should have one or more directors who appreciate the
importance of global business trends and who have first-hand knowledge
of international business experience in those markets.
Leadership - Ultimately, a company's performance will be determined by
the directors' and CEO's ability to attract, motivate, and energize a
high-performance leadership team. The board should have one or more
directors who understand and possess empowerment skills and have a
history of motivating high-performing talent.
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Strategy & Vision - A key board role is to approve and monitor company
strategy to ensure the company's continued high performance. The board
should have one or more directors with the skills and capacity to
provide strategic insight and direction by encouraging innovation,
conceptualizing key trends, evaluating strategic decisions, and
continuously challenging the organization to sharpen its vision.
Changes in Professional Responsibility
The board should consider whether a change in an individual's
professional responsibilities directly or indirectly impacts that person's
ability to fulfill directorship obligations. To facilitate the board's
consideration, the board requires that the CEO and other inside directors submit
a resignation as a matter of course upon retirement, resignation, or other
significant change in professional roles and responsibilities. All directors
should submit a resignation as a matter of course upon retirement, a change in
employer, or other significant change in their professional roles and
responsibilities. If the board believes that a director will continue to make a
contribution to the organization, the continued membership of that director may
be supported.
Identification and Recruitment of Board Members
One of the tasks of the nominating and governance committee is to
identify and recruit candidates to serve on the board of directors. A list of
candidates shall be presented to the board for nomination and to the
stockholders for consideration. The committee may at its discretion seek
third-party resources to assist in the process. The CEO will be included in the
process on a non-voting basis. The nominating and governance committee will make
the final recommendation to the board.
Independent Directors
A substantial majority of the board of directors should be independent.
An independent director is defined as a director who:
o has not been employed by the company in an executive capacity
within the last five years
o is not, and is not affiliated with a company that is, an
adviser, or consultant to the company or a member of the
company's senior management
o is not affiliated with a significant customer or supplier of
the company
o has no personal services contract(s) with the company, or a
member of the company's senior management
o is not affiliated with a not-for-profit entity that receives
significant contributions from the company
o within the last five years, has not had any business
relationship with the company (other than service as a
director) for which the company has been required to make
disclosure under Regulation S-K of the Securities and Exchange
Commission as currently in effect
o is not employed by a public company at which an executive
officer of the company serves as a director
o has not had any of the relationships described above with any
affiliate of the company
o is not a member of the immediate family of any person
described above
Outside Directorships
The CEO and senior management of Nuevo should limit outside
directorships to one or two; non-employee directors who are employed on a
full-time basis should limit other directorships to three or four; and retired
executives should limit other directorships to five or six.
Directors are expected to attend all board and committee meetings in
person or by phone. Directors shall be prepared by reviewing in advance all
materials and be present at the meeting in person or by phone until its
adjournment.
Compensation of Directors
In order to align the interests of directors and stockholders,
Directors will be compensated in the form of cash and company equity only, with
equity constituting a substantial portion of the total up to 100%.
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Direct Investment in the Company Stock by Directors
Since a significant ownership stake leads to a stronger alignment of
interests between directors and stockholders, each director is required to
personally invest at least $100,000 in company stock within 3 years of joining
the board. Exceptions to this requirement may only be made by the board under
compelling mitigating circumstances.
Service Limitations of Directors
In order to replenish the board with fresh approaches to managing the
company, the maximum board tenure shall be 15 years.
A Board member may not stand for reelection after age 70, but need not
resign until the end of his or her term.
In order to retain freshness in the process and to give new management
the unfettered ability to provide new leadership, a retiring CEO shall not
continue to serve on the board.
BOARD ORGANIZATION
Board Size
In general, smaller boards are more cohesive, work better together and
tend to be more effective monitors than larger boards. Therefore, the board
shall be composed of six to twelve members. However, in order to accommodate the
availability of an outstanding candidate the number of positions on the board
may be expanded.
Committee Structure
It is the general policy of the company that all major decisions will
be considered by the board as a whole. As a consequence, the committee structure
of the board is limited to those committees considered to be basic to or
required for the operation of the company as a publicly-owned entity. Standing
committees shall include audit, compensation, and nominating and governance. All
of the committees shall be composed solely of independent directors. The board
may form other committees as it determines appropriate.
Independent Chair
The board believes that the company is best served by unifying the
positions of Chairman and CEO. This structure provides a single leader with a
single vision for the company and results in a more effective organization.
BOARD OPERATIONS
Board Access to Senior Management
Board members have full access to senior management and to information
about the corporation's operations. Except in unusual circumstances, the CEO
should be advised of significant contacts with senior management.
Board Ability to Retain Advisors
The board shall retain advisors as it believes to be appropriate. If
management is retaining advisors to the board, such decision must be ratified by
the board. Individual directors should not retain their own advisors except in
exceptional circumstances.
-11-
<PAGE> 14
Material in Advance of Meetings
The board must be given sufficient information to fully exercise its
governance functions. This information comes from a variety of sources,
including management reports, a comparison of performance to plans, security
analysts' reports, articles in various business publications, etc. Generally,
board members will receive information prior to board meetings so they will have
an opportunity to reflect properly on the items to be considered at the meeting.
The board will ensure that adequate time is provided for full
discussion of important items and that management presentations are scheduled in
a manner that permits a substantial proportion of board meeting time to be
available for open discussion.
Executive Session
Time will be allotted at the end of each board meeting for an executive
session involving only the independent directors.
Evaluation of CEO
The selection and evaluation of the chief executive officer and
concurrence with the CEO's selection and evaluation of the corporation's top
management team is the most important function of the board. In its broader
sense, "selection and evaluation" includes considering compensation, planning
for succession and, when appropriate, replacing the CEO or other members of the
top management team. The performance of the CEO will be reviewed at least
annually without the presence of the CEO or other inside directors. The board
should have an understanding with the CEO with respect to criteria on which he
or she will be evaluated, and the results of the evaluation will be communicated
to the CEO.
Management Development
The CEO will report annually to the board on the company's program for
management development.
Succession Plan
CEO succession is a board-driven, collaborative process. Although the
current CEO has an important role to play, the board must develop its own plan
for succession while collaborating with the CEO in deciding the timing and the
necessary qualifications for making a final decision.
Outside Contacts
The board believes that the management speaks for the company.
Individual board members may, from time to time at the request of management,
meet or otherwise communicate with various constituencies that are involved with
the company. If comments from the board are appropriate, they should, in most
circumstances, come from the Chairman; however, this does not preclude
directors, in the exercise of their fiduciary duties and subject to
confidentiality constraints, from communicating with stockholders or others.
STOCKHOLDER RIGHTS
Annual Election of Directors
In order to create greater alignment between the board's and our
stockholder's interests and to promote greater accountability to the
stockholders, directors shall be elected annually.
Stockholder Rights Plan
The company believes that in the hands of a properly aligned and
properly governed board, a Terminatable Stockholder Rights Plan is in the best
interests of all stockholder's. Because the board acknowledges that conditions
change, the nominating and governance committee of the board will undertake a
complete review of the efficacy of the company's stockholder rights plan every
three years.
-12-
<PAGE> 15
================================================================================
PROPOSAL I. ELECTION OF DIRECTORS:
- - --------------------------------------------------------------------------------
Our certificate of incorporation currently provides for a board of
directors divided into three classes of nearly equal size, designated as Class
I, Class II and Class III. Directors are elected to serve three year terms. At
the 1999 annual meeting, Class III directors are being elected for a three year
term which will end at the annual meeting in 2002. The nominating and governance
committee has nominated Robert L. Gerry III, David Ross III and David H.
Batchelder to serve as Class III directors.
In proposal II, we are asking our stockholders to declassify our board
of directors so that all of our directors are elected annually. If proposal II
is approved by stockholders, all of our directors will stand for re-election at
the 2000 annual meeting and at each annual meeting thereafter.
================================================================================
INFORMATION ABOUT OUR DIRECTORS AND EXECUTIVE OFFICERS
- - --------------------------------------------------------------------------------
The following is information about our directors and executive
officers. In the following materials "options owned" includes all options owned
by the director, even those which have not vested.
DIRECTORS
ISAAC ARNOLD, JR.
[picture of Mr. Arnold] 62 years old
Director since 1990
Shares owned directly and indirectly: 40,820
Options owned: 56,250
Board committees: Audit, compensation
Relationship to Nuevo: None, other than as a
director
BIOGRAPHICAL INFORMATION
Since 1984, Mr. Arnold has been chairman of the board of Quintana
Petroleum Corporation, a privately held production company which does not
compete with Nuevo. He is also chairman of the board of Legacy Trust Company. He
has been a director of Cullen Center Bank & Trust since its inception in 1969
and is a director of Cullen/Frost Bankers, Inc. Mr. Arnold is a trustee of the
Museum of Fine Arts and The Texas Heart Institute. Mr. Arnold received his
B.B.A. from the University of Houston in 1959.
WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
I have been involved in the energy industry for many years. In 1990, I
saw Nuevo as an exciting young entrepreneurial company that was trying to do
things differently. It has been a gratifying experience to watch this company
grow into the organization it is today and I am equally excited about our
future.
THOMAS D. BARROW
[picture of Mr. Barrow] 55 years old
Director since 1990
Shares owned: 30,800
Options owned: 56,250
Board committees: Audit
Relationship to Nuevo: None, other than
as a director
-13-
<PAGE> 16
BIOGRAPHICAL INFORMATION
Mr. Barrow is president of Barrow Energy Corporation, a position he has
held since its formation in 1988. Barrow Energy is a privately held company in
the business of exploring for oil and gas primarily in East Texas which does not
compete with Nuevo. Mr. Barrow is also a founder and director of Bargo Energy
Company, a private company engaged in the acquisition of oil and gas properties
and a director of Future Petroleum Corporation, a small public oil and gas
company. Neither Bargo nor Future compete with Nuevo.
WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
I joined Nuevo's board because I believed in the concept of an
opportunistic acquisition company with low overhead due to outsourcing being
able to create significant shareholder value. We have in fact been able to do
just that and I think we've been good stewards of our shareholders' investments.
DAVID H. BATCHELDER
[picture of Mr. Batchelder] 49 years old
Director since 1999
Shares owned: 1,914,300 (beneficially
through Relational partnerships)
Options owned: 0
Board committees: None
Relationship to Nuevo: None, other
than as a director
BIOGRAPHICAL INFORMATION
Mr. Batchelder has been chairman and chief executive officer of
Batchelder & Partners, Inc., a financial advisory and investment banking firm,
since 1988. He also has been a managing member of Relational Investors LLC, the
general partner of an active investment fund, since March 1996. Mr. Batchelder
is also a director of Morrison Knudson Corporation and Apria Healthcare Group
Inc. Mr. Batchelder received a B.S. in accounting from Oklahoma State University
in 1971 and is a certified public accountant.
WHY DID YOU JOIN NUEVO'S BOARD IN 1999?
I joined Nuevo's board of directors because I believe that board
representation by a substantial shareholder with no conflicts of interests with
other shareholders is consistent with sound corporate governance and positively
impacts board dynamics. I expect to utilize my substantial industry experience
to assist the company in responding to a difficult commodity pricing
environment.
CHARLES M. ELSON
[picture of Mr. Elson] 39 years old
Director since 1998
Shares owned: 2,778
Options owned: 11,250
Board committees: Compensation
(chairman), nominating and governance
Relationship to Nuevo: None, other than
as a director
BIOGRAPHICAL INFORMATION
Mr. Elson has been a professor of law at Stetson University College of
Law since 1990 and serves as of counsel to the law firm of Holland & Knight
(since 1995). He is a member of the American Law Institute and the Advisory
Council and Commissions on Director Compensation, Audit Committees, and Director
Professionalism of the National Association of Corporate Directors. Mr. Elson is
widely regarded as an expert on corporate governance and has served on panels
and blue ribbon commissions on such issues as executive compensation, director
compensation, director professionalism, chief executive officer succession and
others. He is a trustee of Talledega College and a Salvatori Fellow of the
Heritage
-14-
<PAGE> 17
Foundation. Mr. Elson currently serves as a director of Sunbeam Corporation, a
consumer products company, a position he has held since 1996. He also served as
a director of Circon Corporation, a medical products manufacturer, from 1996
until its sale in 1999. Mr. Elson received his B.A. from Harvard College in 1981
and his J.D. from the University of Virginia in 1985.
WHY DID YOU JOIN NUEVO'S BOARD IN 1998?
I was attracted to Nuevo because I sensed a true desire on the part of
its board and senior management to be a leader among public companies in terms
of corporate governance. The nominating and governance committee on which I
serve has just published Nuevo's corporate governance guidelines after much work
and discussion. This document clearly positions Nuevo on the leading edge of
shareholder-oriented governance and I believe will result in increased
shareholder wealth in the long run.
DOUGLAS L. FOSHEE
[picture of Mr. Foshee] 39 years old
Director since 1997
Shares owned: 28,448
Options owned: 565,000
Board committees: None
Relationship to Nuevo: None, other than
as chairman, president and chief
executive officer
BIOGRAPHICAL INFORMATION
Mr. Foshee became a director of Nuevo in 1997 concurrent with his
assumption of the position of president and chief executive officer in August.
In December 1997, Mr. Foshee was also appointed chairman of the board of
directors. Mr. Foshee served from 1993 until 1997 in various capacities for
Torch Energy Advisors Incorporated ("Torch"), including vice president special
projects, executive vice president acquisitions and financial analysis,
president, chief operating officer, and ultimately chief executive officer.
Prior to his tenure at Torch, Mr. Foshee was employed by ARCO International Oil
and Gas Company in various positions in finance and new business ventures. His
finance background also includes seven years in commercial banking, primarily as
an energy lender for major financial institutions. Mr. Foshee serves on the
board of Small Steps Nurturing Center, and is a member of the Independent
Petroleum Association of America, the National Petroleum Council, and the
Council of Overseers for the Jones Graduate School at Rice University. Mr.
Foshee received his B.B.A. from Southwest Texas State University in 1982 and his
M.B.A. from the Jesse H. Jones Graduate School at Rice University in 1992. He is
also a graduate of the Southwestern Graduate School of Banking at Southern
Methodist University (1991).
WHY DID YOU JOIN NUEVO IN 1997?
I had a unique perspective on Nuevo in 1997, having served as the chief
executive officer of Nuevo's largest service provider, Torch Energy Advisors. I
also ran Torch's acquisitions department during many of Nuevo's most significant
acquisitions, including having direct responsibility for negotiating the $480
million acquisition in 1996 of the company's California assets. So I knew a
great deal about the company's assets and I had worked with most of Nuevo's
talented staff for many years. That made my decision easy. Nuevo is endowed with
great assets and great people. I thought that I was uniquely qualified to lead
this incredible company.
ROBERT L. GERRY III
[picture of Mr. Gerry] 61 years old
Director since 1990
Shares owned: 6,500
Options owned: 276,250
Board committees: None
Relationship to Nuevo: Served as Nuevo's
vice chairman from 1994 to 1997 and
president and chief operating officer
from 1990 to 1994
-15-
<PAGE> 18
BIOGRAPHICAL INFORMATION
Since 1997, Mr. Gerry has been chairman of the board of directors and
chief executive officer of Vaalco Energy, Inc., a public independent oil and gas
company which does not compete with Nuevo. From 1994 to 1997, Mr. Gerry was vice
chairman of Nuevo. Prior to that, he was president and chief operating officer
of Nuevo since its formation in 1990. Mr. Gerry currently serves as a trustee of
Texas Children's Hospital.
WHY DID YOU JOIN NUEVO IN 1990 AS ITS FIRST PRESIDENT?
We believed we had a unique opportunity to grow an underperforming
limited partnership into a powerhouse independent oil and gas company. We felt
we could build value by reinvesting income in prudent acquisitions and drilling
opportunities. Our vision was correct and Nuevo exceeded our wildest dreams.
Absurdly low commodity prices have once again offered a rare opportunity for
thoughtful management to build a solid company into a major independent. The
time is now and we are ready.
GARY R. PETERSEN
[picture of Mr. Petersen] 52 years old
Director since 1990
Shares owned: 2,500
Options owned: 18,750
Board committees: Audit and compensation
Relationship to Nuevo: In addition to
participation on the board, Mr. Petersen
is a principal in a company which
participated with a group of lenders in
1992 in lending $12 million to a joint
venture in which Nuevo was an owner.
That loan was repaid in full in 1997.
BIOGRAPHICAL INFORMATION
Mr. Petersen is a co-founder and has been a partner of EnCap
Investments, Inc., a firm which provides capital in the form of both debt and
equity to the energy industry. From 1984 to 1988, he served as senior vice
president and manager of the corporate finance division of the energy banking
group for RepublicBanc Houston. From 1979 to 1984, he was executive vice
president and a director of Nicklos Oil and Gas Company. He also served as a
group vice president in the petroleum and minerals division of RepublicBanc
Dallas. He is a member of the board of Harken Energy Corporation, Energy Capital
Investment Company, Equus II Incorporated and the Petroleum Club of Houston. Mr.
Petersen received his B.B.A from Texas Tech University in 1968 and his M.B.A.
from Texas Tech University in 1970.
WHY DID YOU JOIN NUEVO'S BOARD IN 1990?
Nuevo is my kind of company. We take a different approach to the
exploration and production business. We manage this company's assets as a
portfolio, much like we do at EnCap where we serve institutional investors in a
different capacity. I think that's the right way to go about this business and I
think that's to a large degree why Nuevo has been so successful.
DAVID ROSS III
[picture of Mr. Ross] 58 years old
Director since 1997
Shares owned: 10,000
Options owned: 11,250
Board committees: Nominating and
governance (chairman)
Relationship to Nuevo: None, other than
as a director
-16-
<PAGE> 19
BIOGRAPHICAL INFORMATION
Mr. Ross is a private investor. From 1987 to 1993, Mr. Ross was
chairman and chief executive officer of Sterling Consulting Group, which
provided corporate planning, treasury management and economic evaluation to the
oil and gas industry. He was a principal of The Sterling Group, a firm
specializing in leveraged buyouts, from 1986 to 1987. He currently serves on the
Council of Overseers and is an Adjunct Professor of Finance at the Jesse H.
Jones Graduate School of Administration at Rice University, where he has served
since 1994 and 1979, respectively. Mr. Ross is a member of the board of Cooper
Cameron Corporation, an oilfield services equipment manufacturer. He also serves
as vice president and a board member of Da Camera of Houston, a nonprofit arts
organization. Mr. Ross received his B.A. from Yale University in 1962 and his
M.B.A. from Harvard University in 1970.
WHY DID YOU JOIN NUEVO'S BOARD IN 1997?
I teach a finance course at Rice University which Doug Foshee attended,
so I was familiar with him, but not with Nuevo when I was approached in 1997 to
join the board. After meeting with management and the board as a whole, I was
convinced that this was a company that would succeed over the long term. I was
particularly impressed by the company's efforts to align compensation with
shareholder objectives. My experience in different industries tells me that when
management is on the hook financially, good things tend to happen.
ROBERT W. SHOWER
[picture of Mr. Shower] 61 years old
Director since 1998
Shares owned: 10,000
Options owned: 11,250
Board committees: Audit (chairman),
nominating and governance
Relationship to Nuevo: None, other than
as a director
BIOGRAPHICAL INFORMATION
Mr. Shower served as executive vice president and chief financial
officer of Seagull Energy Corporation, an oil and gas company, from 1994 until
his retirement in 1996. From 1992 to 1994, he served as Seagull's senior vice
president and chief financial officer. From 1991 to 1992, Mr. Shower served as
senior vice president, corporate development, for Albert Fisher, Inc., a company
engaged in produce distribution. Mr. Shower served for 10 years as chief
financial officer for the Williams Companies and also served on its board from
1977 to 1986. Mr. Shower currently serves on the boards of Lear Corporation, one
of the world's largest automotive suppliers; Breed Technologies, a worldwide
leader in automotive occupant safety systems; Highlands Insurance Group, Inc.;
and Edge Petroleum Corporation, a technology-oriented exploration company. Mr.
Shower received his B.S. from the University of Tulsa in 1960. He also attended
the Program for Management Development at Harvard Business School in 1972.
WHY DID YOU JOIN NUEVO'S BOARD IN 1998?
In my capacity as chief financial officer at Seagull Energy, I worked
with Bob King, who subsequently became Nuevo's chief financial officer. So I had
some familiarity with Nuevo when I was approached by the board. I was convinced
after meeting the board and members of the management team that they were doing
some exciting things. The company has great assets, albeit at depressed
valuations currently, and a talented and motivated group of employees who are
very focused on creating shareholder value.
-17-
<PAGE> 20
ELECTION OF MR. BATCHELDER
David H. Batchelder is a managing member of Relational Investors LLC.
Relational Investors LLC is the general partner of partnerships which, based on
filings they made with the SEC, in the aggregate, own 1,914,300 shares of our
common stock, or approximately 9.6% of our outstanding common stock. In December
1998, Mr. Batchelder notified us of his intention to stand for election to our
board of directors at the 1999 annual meeting. Mr. Batchelder advised us of his
view that, despite the steps we had taken to add independent directors to our
board, Nuevo's corporate governance and responsiveness to shareholders would be
enhanced by the addition to the board of a representative of one of our largest
stockholders.
Mr. Batchelder's request was forwarded to our nominating and governance
committee for consideration. Following a number of conversations between members
of our nominating and governance committee and Mr. Batchelder, we entered into
an agreement with Relational Investors, LLC on March 1, 1999. In the agreement,
our nominating and governance committee agreed to consider a proposed director
nominated by Relational because Relational is one of our largest stockholders
and our desire was to avoid the expense and distraction of a possible proxy
contest. We expect that Mr. Batchelder will be appointed to our board of
directors at the March 1999 regular meeting. After his appointment to the board,
Relational has agreed not to make any director nominations at the 1999 annual
meeting.
When he is appointed to our board of directors, Mr. Batchelder will
sign an irrevocable letter of resignation which provides that if a majority of
our directors, in good faith, determines that acceptance of his resignation is
necessary to enable us to pursue our strategic alternatives in a manner which
our board of directors reasonably believes to be in the best interests of our
stockholders, the resignation will become effective.
In the agreement, Relational agrees that for so long as Mr. Batchelder
is on our board of directors and for 90 days thereafter, Relational will not
seek additional representation on our board of directors or make proposals to
our stockholders. If, however, Mr. Batchelder resigns, other than a resignation
pursuant to the irrevocable resignation described above, 90 days or more prior
to an annual meeting, or if the irrevocable resignation is exercised by our
board of directors, then Relational will be allowed to propose directors and
other matters at our next annual meeting, if the proposals are made within 15
days of the resignation. We agreed that provisions of our certificate of
incorporation which require advanced notice of these proposals would not be
applicable to a director nomination or proposal by Relational in these
circumstances.
Relational has also agreed that for so long as Mr. Batchelder is a
member of our board, Relational will not, and will not permit its affiliates and
associates, to discuss or negotiate with any industry participant, the strategic
alternatives available to us, or any mergers, sales of assets or other similar
transactions.
EXECUTIVE OFFICERS
Robert M. King, 38, joined us as senior vice president and chief
financial officer in January 1996. Prior to that, Mr. King was vice president,
corporate development and treasurer of Seagull Energy Corporation, which he
joined in 1990 after having spent over seven years in energy finance with The
First National Bank of Chicago and Mellon Bank, N.A. Mr. King has a B.A. in
economics and political science from Southern Methodist University and an M.B.A.
in finance from the Cox School of Business at Southern Methodist University.
Michael P. Darden, 41, joined us as vice president - business
development in May 1998. Prior to that he was special counsel for Baker & Botts,
L.L.P., a law firm, since 1993, where his practice focused on international and
domestic oil and gas ventures, asset acquisitions and sales, and energy-based
financings. Mr. Darden was employed by Hunt Oil Company from 1990 to 1993 where
he was senior international counsel. From 1988 to 1990, he was employed by BHP
Petroleum (Americas) Inc. as attorney-international/offshore and from 1986 to
1988 he was employed by Tenneco Oil Company as senior international negotiator.
Mr. Darden has worked extensively on petroleum projects outside the United
States and in all regions of the world. His experience encompasses petroleum
projects at all stages, working with governments, industry partners,
contractors, suppliers, lenders and insurers. Mr. Darden received a B.B.A. in
Petroleum Land Management from The University of Texas in 1980 and a J.D. from
the University of Houston Law Center in 1986.
-18-
<PAGE> 21
Robert S. Gaston, 48, has been vice president - exploration since
1995, and an officer of one of our subsidiaries since April 1993. Mr. Gaston
became a geophysical consultant and partner for the firm of Morrison and Gaston
in May of 1979 where he remained until he became President of Paramount
Petroleum Co., Inc. in April of 1993. Mr. Gaston's 26 years of experience with
independent and major oil and gas companies began with Western Geophysical Co.
of America in 1971, then Getty Oil Company in 1973 and Diamond Shamrock as a
district geophysicist in 1975. Mr. Gaston graduated summa cum laude from
Louisiana Tech with a B.S. in physics in 1971.
Dennis A. Hammond, 43, joined us as vice president - engineering in
1990. In 1983, he was a co-founder of IDM Engineering, Inc., a petroleum
engineering consulting firm. He has held various reservoir engineering positions
with Chevron and Pogo Producing Company. He holds a B.S. degree in petroleum
engineering from Texas A&M University and is a registered professional engineer
in the State of Texas. Mr. Hammond is a member of the Society of Petroleum
Engineers and the American Petroleum Institute.
Sandra D. Kraemer, 31, has been our controller since 1993 and our
corporate secretary since 1997. Prior to 1993, she was employed by Torch Energy
Advisors Incorporated since 1991. From 1990 to 1991, Ms. Kraemer was employed by
Price Waterhouse in its audit department, specializing in the oil and gas
industry. She graduated summa cum laude from Stephen F. Austin State University
with a B.B.A. in accounting in 1990 and is a certified public accountant.
All executive officers and directors of the Company are United States
citizens.
================================================================================
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
- - --------------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires our directors and executive officers, and persons who beneficially own
more than ten percent of our common stock, to file with the SEC and the New York
Stock Exchange reports of ownership and reports of changes in ownership of
common stock. Officers, directors and greater than ten percent stockholders are
required by the SEC's regulations to furnish us with copies of all Section 16(a)
forms they filed with the SEC. Based on a review of the copies of such reports
furnished to us, we believe that all reporting obligations under Section 16(a)
were satisfied.
================================================================================
OPERATION OF OUR BOARD OF DIRECTORS
- - --------------------------------------------------------------------------------
Our board of directors has regularly scheduled quarterly meetings, and
has special meetings as necessary. Each non-officer director receives an annual
fee of $30,000 for service on the board and a semi-annual grant of 10-year
options to purchase 3,750 shares of common stock, with an exercise price equal
to the closing price of our common stock on the date of grant. During 1998, the
board of directors of the company held six meetings and each director attended
at least 75% of the meetings.
AUDIT COMMITTEE. The audit committee recommends the appointment of
independent public accountants to conduct audits of our financial statements,
reviews with the accountants the plan and results of the auditing engagement,
approves other professional services provided by the accountants and evaluates
the independence of the accountants. The audit committee also reviews the scope
and results of the company's procedures for internal auditing and the adequacy
of our system of internal accounting controls. In addition, the audit committee
also reviews our corporate disclosure policies and procedures. Members are
Messrs. Shower (chairman), Arnold, Barrow, and Petersen. The audit committee
held six meetings during 1998.
COMPENSATION COMMITTEE. The compensation committee approves the
compensation of officers, administers the bonus plan for key employees, makes
recommendations to the board regarding any present or future employee incentive
stock option plans and, pursuant to our stock option plans, awards stock options
to those key employees who have been recommended by management. Members are
Messrs. Elson (chairman), Arnold and Petersen. The compensation committee met
twice in 1998.
-19-
<PAGE> 22
NOMINATING AND GOVERNANCE COMMITTEE. The duties of our nominating and
governance committee include recommending the appropriate size of our board,
establishing and reviewing the qualification, compensation, stock ownership and
mandatory resignation and tenure of our directors. Our nominating and governance
committee also periodically evaluates our board and management's communication
with the board. The members of the nominating and governance committee are
Messrs. Ross (chairman), Elson and Shower. The nominating and governance
committee met twice in 1998.
================================================================================
TRANSACTIONS WITH RELATED PERSONS
- - --------------------------------------------------------------------------------
In January 1995, Nuevo loaned International Testing Services, Inc.
("International Testing"), a company involved in the safety testing of oil and
gas pipelines, the sum of $500,000. The president of International Testing is
John B. Connally III, a former director until his resignation in January 1998.
The loan bears interest at the rate of 2.5% over the prime rate. The loan was
initially due on July 1, 1995 and was extended to May 1997. The loan is
unsecured and subordinated to certain existing indebtedness. Outstanding
principal on the loan as of January 15, 1998 was $500,000. International Testing
filed for bankruptcy protection in 1998. The loan was written off for financial
reporting purposes in December 1997. In connection with the loan, Nuevo acquired
a five-year warrant to acquire 350,000 shares of International Testing common
stock, the exercise price of which is substantially in excess of the current
market price of such common stock.
-20-
<PAGE> 23
================================================================================
EXECUTIVE COMPENSATION:
- - --------------------------------------------------------------------------------
The following summary compensation table sets forth cash compensation
for the past three years for our chief executive officer and our four other most
highly compensated executive officers in 1998.
NUEVO ENERGY COMPANY
Summary Compensation Table
<TABLE>
<CAPTION>
LONG-TERM
RESTRICTED COMPENSATION-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS OPTIONS
--------------------------- ---- ------ ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Douglas L. Foshee 1998 $ 375,000 $ -- $ -- 220,000(2)
Chairman, Chief Executive 1997 143,466(1) 317,500 -- 330,000
Officer and President
Robert M. King 1998 160,000 30,000 -- 66,250
Senior Vice President and 1997 160,000 130,000 79,856 32,500
Chief Financial Officer 1996 156,970 178,000 95,750 70,000
Dennis A. Hammond 1998 160,000 -- -- 66,250
Vice President - Engineering 1997 160,000 130,000 79,856 32,500
1996 140,000 162,000 95,750 40,000
Robert S. Gaston 1998 160,000 -- -- 66,250
Vice President - Exploration 1997 160,000 130,000 39,928 32,500
1996 150,000 75,000 47,875 15,000
Michael P. Darden 1998 99,950(3) 100,000(4) -- 91,250
Vice President - Business
Development
</TABLE>
- - ----------
(1) Mr. Foshee became an employee in August 1997. Information regarding
Mr. Foshee is for periods during which he was employed by Nuevo.
(2) Mr. Foshee was granted 100,000 options in August of 1998 as part of
his employment agreement.
(3) Mr. Darden became an employee in May 1998. Information regarding Mr.
Darden is for the periods during which he was employed by Nuevo.
(4) Mr. Darden was hired by us in May 1998 and was paid a signing bonus of
$100,000. Mr. Darden contributed 75% of the bonus to the company's
deferred compensation plan in order to purchase shares of Nuevo common
stock.
-21-
<PAGE> 24
The following table sets forth certain information concerning grants of
options to purchase our common stock made during 1998 to the executive officers
named in the summary compensation table. The exercise price of options granted
to our executive officers is the closing price of the common stock on the date
of grant.
1998 Stock Option Grants
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS PER SHARE GRANT DATE
OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES PRICE DATE VALUE(1)
---- --------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
Douglas L. Foshee............... 130,000(2) 11.6% $ 21.31 08/11/08 $ 1,391,000
81,000 7.2% 11.13 12/14/08 451,980
9,000 0.8% 16.13 12/14/08 39,690
Robert M. King.................. 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Dennis A. Hammond............... 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Robert S. Gaston................ 16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
Michael P. Darden............... 25,000 2.2% 35.88 05/11/08 450,250
16,250 1.5% 21.31 08/11/08 173,875
45,000 4.0% 11.13 12/14/08 251,100
5,000 0.4% 16.13 12/14/08 22,050
</TABLE>
- - ----------
(1) We calculated the grant date present value using the "Black Scholes"
model, a widely accepted method of valuing options. This valuation
model is hypothetical; the actual value, if any, depends on the excess
of the market price of the shares over the exercise price on the date
the option is exercised. If the market price does not increase above
the exercise price, compensation to the grantee will be zero. The
Black-Scholes option pricing model is a mathematical formula used for
estimating option values that incorporates various assumptions. The
"Grant Date Present Value" set out in the above table is based on the
following assumptions: (a) a ten-year option term; (b) 50.9% expected
future annual stock volatility for the options; (c) a risk-free rate
of return of 5.0% for the options granted; and (d) no expected
dividend yield. The above model does not include any reduction in
value for non-transferability, forfeiture or vesting of options.
(2) Mr. Foshee was granted 100,000 options in August of 1988 as part of
his employment agreement.
During 1998, we repriced options owned by our employees who are not
officers. These options had been granted over a number of years. Under the SEC's
rules for preparing the option grant table, we treat all of the repriced options
as having been granted in 1998. As a result, the amounts set forth under "% of
total options granted to employees" are lower for the named executive officers
than they would have been had we not repriced options.
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<PAGE> 25
The following table shows the number of options owned by our named
executives. Options in the column marked "unexercisable" are subject to vesting
and will be forfeit if the named executive's employment with us is terminated
for certain reasons. The value of unexercised options is calculated using an
$11.50 per share closing price for our stock on December 31, 1998. None of our
named executives exercised options in 1998.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT DECEMBER 31, 1998(1)
--------------------------------- ---------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
Douglas L. Foshee 435,000 130,000 -- $ 30,375
Robert M. King 69,650 83,750 -- 16,875
Dennis A. Hammond 81,855 83,750 -- 16,875
Robert S. Gaston 70,000 83,750 -- 16,875
Michael P. Darden 25,000 66,250 -- 16,875
</TABLE>
(1) Based on 11.50 per share which was the closing price per share of our
common stock on the New York Stock Exchange Composite Tape on December
31, 1998.
================================================================================
COMPENSATION COMMITTEE REPORT:
- - --------------------------------------------------------------------------------
Our compensation committee consists of three directors who are not
employees or executive officers. The members of the compensation committee in
1998 were Mr. Elson, who was chairman, and Messrs. Arnold and Petersen.
OUR EXECUTIVE COMPENSATION PROGRAM
Our executive compensation program reflects a policy of attracting
highly qualified executives who strive to achieve outstanding individual
performance and who collectively seek outstanding corporate and share price
performance versus that of peer group companies. The committee believes that
Nuevo should seek executives who desire a work environment characterized by a
high level of "at-risk" compensation, which rewards excellent performance and
aligns overall compensation with the objectives of our stockholders.
Accordingly, our compensation system consists of the following elements:
BASE SALARY. The base salaries for our named executive
officers are established by employment agreements with those officers.
The base salaries in these agreements are intended to represent
approximately 50% to 60% of the executives' total salary and cash
bonus.
INCENTIVE BONUS. Under the employment agreements with most of
our executives, bonuses are awarded at the discretion of the
compensation committee. It is the committee's overall objective that
the sum of base salaries plus cash bonuses should generally be at or
about the 50th to 60th percentile of peer group companies.
STOCK OPTIONS. Each of our employees receives stock options as
a component of his or her compensation, in order to align the interests
of employees with those of our stockholders. The number of options
granted to an employee is based on the committee's view of the
employee's capacity to impact the value of Nuevo's shares. We believe
that because we outsource non-strategic functions, resulting in
substantially fewer employees eligible to receive options, we have a
substantial advantage over peer companies in the number of options that
we can grant to our employees. It is the committee's overall objective
that the sum of base salaries plus incentive bonuses plus options
should generally compare at or about the 80th to 90th percentile of
peer group companies.
During 1997, the compensation committee established a stock ownership
program for its senior executives that provides incentives for each executive to
achieve and maintain a targeted level of ownership of Nuevo common stock. These
target levels of ownership are set by the committee for each executive. Counted
against this stock ownership are shares owned directly by the executive or owned
-23-
<PAGE> 26
beneficially through an immediate family member, including shares acquired
through the exercise of options and shares acquired through our deferred
compensation and 401(k) plans. Shares that may be received upon exercise of
options do not count toward the ownership objectives. Under the program, each
executive's common stock ownership is reported to the committee twice a year. An
executive's progress toward meeting stated ownership objectives is a meaningful
element of his performance review.
OVERVIEW
1998 was a difficult year for Nuevo. Oil prices during 1998 and into
1999 have reached historic lows when adjusted for inflation. Because a
substantial part of our oil production is heavy oil, these low prices affected
our revenues and cash flows more than conventional oil and gas producers. Our
executive team, however, has positioned us to survive this low price environment
and, as importantly, positioned Nuevo to benefit quickly when oil prices return
to normal levels. For example, during 1998 we completed an offering of $100
million of senior subordinated notes which mature in 2008. These notes more
closely align our indebtedness with the long lives of our assets. In addition,
we sold our East Texas gas properties for a very attractive price. These
transactions reduced our net bank debt to zero following the closing of the sale
of the East Texas assets and application of proceeds. Additionally, even with a
reduced capital expenditure budget, we replaced our 1998 production without
making any material acquisitions.
CHIEF EXECUTIVE OFFICER. Douglas L. Foshee was appointed chief
executive officer in August 1997, at which time he entered into an employment
agreement providing for a base salary of $375,000 during 1998. Mr. Foshee did
not receive a bonus during 1998 because of Nuevo's share price performance. Mr.
Foshee was granted options to purchase 90,000 shares of common stock.
KEY EXECUTIVE OFFICERS. The compensation committee continues to review
on an individual level each such executive's leadership in his area of
expertise, and also evaluates years of service, experience level, position and
general economic and industry conditions. However, no specific weight is
assigned to these factors. The committee also studies peer group compensation
levels for comparable positions. With respect to bonus compensation, the
committee has historically followed a philosophy of allocating a significant
portion of the total compensation paid to executive officers as "at risk"
compensation in order to emphasize pay for performance.
During 1998, our executive officers were not granted incentive bonuses
due to our share price performance. Mr. King received a cash bonus payment of
$30,000 under his employment contract, and Mr. Darden received a bonus of
$100,000 in connection with his acceptance of employment with us in 1998.
Base salaries for 1999 were not increased for the second consecutive
year.
STOCK BASED COMPENSATION
The compensation committee believes the stock options that it has
granted in the past, and those granted in 1998, serve a valuable purpose by
attracting and retaining key executives, and encouraging increased job
performance by the recipients of such grants. The committee bases the number of
awards granted to executive officers on no predetermined formula, but rather on
each individual's accomplishments, level of responsibility, and that person's
impact on Nuevo's performance for the year.
Messrs. Foshee, King, Hammond, Gaston and Darden, were granted a total
of 220,000, 66,250, 66,250, 66,250, and 91,250 options in 1998, respectively.
Ten percent of these grants were made at a $5.00 premium to the market price on
date of grant and the remainder were made at the market price of the common
stock on the date of the grant.
EXECUTIVE EMPLOYMENT CONTRACTS
In 1997, we entered into an employment contract with Mr. Foshee, our
chief executive officer. The agreement provided for the following compensation
during 1998:
o a base salary of $375,000,
o discretionary bonuses based upon performance to be determined
by our compensation committee,
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<PAGE> 27
o reimbursement for membership fees to the Houston Center Club,
the Petroleum Club and the Young Presidents Organization,
o a grant of options to purchase 100,000 shares of our common
stock on August 14, 1998, at a stock price equal to the
closing price on that date.
Mr. Foshee's employment agreement is terminable by either party but, in
the event that his employment is terminated for reasons other than just cause or
his voluntary resignation, we are obligated to pay him a sum equal to two times
the aggregate of:
o his salary for the twelve months immediately preceding the
date of termination (less applicable withholdings and
deductions required by law), plus
o any bonus paid to Mr. Foshee in the twelve-month period.
In the agreement, just cause is generally defined as the failure to
render services to Nuevo as provided in the agreement or the commission of fraud
or other specified illegal acts.
In 1998, we entered into a two year employment agreement with Robert M.
King providing for the following compensation during 1998:
o an annual salary of $160,000,
o reimbursement for reasonable country club dues.
Mr. King's employment agreement is terminable by either party but, in
the event his employment is terminated for reasons other than just cause or at
his option, we must pay him the greater of two times his annual salary and bonus
or $320,000. Just cause has the same meaning in Mr. King's contract as in Mr.
Foshee's.
In 1997, we entered into identical employment agreements with Dennis A.
Hammond and Robert S. Gaston providing for a monthly salary of $13,333.34,
payable in semi-monthly installments and an annual discretionary bonus, stock
option and stock bonus awards as determined by our compensation committee. Each
of Mr. Hammond's and Mr. Gaston's Employment Agreement is for no definitive term
and is terminable by either party at any time for any lawful reason. In the
event that Mr. Hammond's or Mr. Gaston's employment is terminated as a result of
a change of control, then each of Mr. Hammond and Mr. Gaston is entitled to
receive two years salary and bonus (calculated based on the average of the last
two year's bonus award) if they are not offered an equivalent job with our
successor.
LONG-TERM INCENTIVE PLAN AWARDS
We do not have a long-term incentive plan for our employees, other than
the 1990 stock option plan and the 1993 stock incentive plan. Under the 1990
stock option plan and the 1993 stock incentive plan, our executive officers,
directors and employees are eligible to receive awards of stock options or of
shares of stock or other awards which have a value which increases or decreases
with the price of our stock.
DEFERRED COMPENSATION PLAN
During 1996, we adopted the Nuevo Energy Deferred Compensation Plan to
encourage senior executive officers to personally invest in our shares.
Executives at the level of vice president and above are eligible to participate
in the plan. The plan allows our senior executives to defer all or a portion of
their annual salaries and bonuses. Currently, such deferred salaries and bonuses
must be invested in our common stock or a money market account until the
employee satisfies the stock ownership criteria established by the compensation
committee. After the stock ownership thresholds are met (the "target"), deferred
amounts may be invested in any equity indexed investment selected by the
compensation committee. Stock is acquired under the plan at a discount of 25% to
the then current market price, and is subject to restrictions on transfer.
-25-
<PAGE> 28
The following table shows the targeted stock ownership amounts under
our Deferred Compensation Plan. The shares owned column includes shares owned
directly and indirectly in our 401(k) plan and deferred compensation plan, but
does not include shares which may be issued pursuant to stock options.
<TABLE>
<CAPTION>
NAME SHARES OWNED TARGET
---- ------------ ------
<S> <C> <C>
Douglas L. Foshee......................... 28,448 46,875
Robert M. King............................ 20,928 16,667
Dennis A. Hammond......................... 19,253 13,333
Robert S. Gaston.......................... 19,883 13,333
Michael P. Darden......................... 7,156 12,917
</TABLE>
CHARLES M. ELSON, CHAIRMAN
ISAAC ARNOLD, JR.
GARY R. PETERSEN
================================================================================
PERFORMANCE GRAPH
- - --------------------------------------------------------------------------------
The following graph compares the yearly percentage change in our
cumulative total stockholder return on our common stock to the total return on
the New York Stock Exchange and the cumulative total return on a peer group of
oil and gas exploration companies selected by us from January 1, 1994 until
December 31, 1998.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nuevo ......................... 100.0 92.31 114.74 266.67 208.97 58.97
NYSE Market Index ............. 100.0 98.06 127.15 153.16 201.50 239.77
Peer group .................... 100.0 110.89 169.84 211.88 151.22 63.78
WTI ........................... 100.0 92.97 99.57 119.10 111.53 78.08
Dow Jones Oil Secondary Index.. 100.0 100.85 116.66 154.69 163.15 107.80
</TABLE>
For our proxy this year and in future years, we will include a
comparison to a "peer group." In prior years, in addition to the NYSE market
index, we included a comparison to the Dow Jones Oil Secondary Index. We have
changed to a peer group in place of the secondary index because the secondary
index included a number of companies which were not engaged in exploration and
production of oil and gas. Our peer group is composed of the following
companies: Benton Oil and Gas Company, Coho Energy, Inc., EEX Corporation,
Forcenergy Inc., HS Resources, Inc., Newfield Exploration Company, Plains
Resources Inc., Pogo Producing Company, Range Resources Corporation, Vintage
Petroleum, Inc. and Triton Energy Ltd. We have also included the Dow Jones Oil
Secondary Index this year for comparative purposes.
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<PAGE> 29
===============================================================================
PROPOSAL II: AMENDMENTS TO OUR CERTIFICATE OF INCORPORATION AND BYLAWS:
- - --------------------------------------------------------------------------------
We are proposing three amendments to our certificate of incorporation
and one conforming amendment to our bylaws. Adoption of one of the amendments is
not contingent upon adoption of the other amendments, so you may vote for or
against any or all of the amendments.
A. DECLASSIFICATION OF THE BOARD OF DIRECTORS
Our board of directors currently is divided into three classes. One
class stands for election each year, and directors in a class are elected for
three year terms. A classified board of directors may have the effect of making
it more difficult for a person to acquire control of Nuevo since it may require
two annual meetings to replace a majority of directors and acquire effective
control over Nuevo.
Our nominating and governance committee has determined that a
classified board of directors, by limiting our stockholders' ability to control
the composition of the board, may have the undesirable effect of making our
board of directors less responsive to our stockholders. The nominating and
governance committee has therefore recommended, and the board of directors has
unanimously approved, deletion of the provisions providing for a classified
board of directors from our certificate of incorporation and bylaws. If approved
by stockholders, Article Six, Section 1 of the certificate of incorporation
shall be amended to read as follows:
"The business and affairs of the Corporation shall be managed by a
Board of Directors which, subject to the rights of holders of shares of
any class or series of preferred stock of the Corporation then
outstanding to elect additional directors, shall consist of not less
than three nor more than 21 persons. Within these limitations, the size
of the Board of Directors shall be fixed from time to time as provided
in the bylaws. Directors shall be elected for a term of office that
expires at the next succeeding annual meeting of stockholders and
shall hold office until their successors have been elected and
qualified."
And the last two sentences of Section 3.1 of our bylaws, which also provide for
a classified board of directors, will be deleted.
Our certificate of incorporation and bylaws provide that amendments to
delete the provisions providing for a classified board of directors requires the
approval of holders of 80% our the shares entitled to vote at the annual
meeting.
Your board of directors believes that annual election of directors is
an important part of good corporate governance, and encourages you to vote in
favor of these amendments.
B. DELETION OF BUSINESS COMBINATION PROVISIONS
Our certificate of incorporation contains a provision intended to make
it more difficult for a person who acquires a large stock position in Nuevo to
effect certain types of mergers, assets purchases and similar transactions,
without a super-majority vote of stockholders. Specifically, our certificate of
incorporation provides that a "business combination" with an "interested
stockholder" must be approved by either:
(i) a majority of the "continuing directors",
(ii) or by a majority of the directors and holders of 80% of the
outstanding stock entitled to vote.
In general, an "interested stockholder" is a person or group of persons
who own or control, directly or indirectly, 20% of our outstanding voting stock.
A business combination is defined broadly to include mergers, sales of assets,
adoption of a plan of liquidation and reclassification of securities. Continuing
directors are those directors who are not affiliated with the interested
stockholder and who were in office prior to the date that the interested
stockholder became an interested stockholder. A continuing director also
includes any person who is appointed as a director with the approval of a
majority of continuing directors.
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<PAGE> 30
Our board believes that these anti-takeover provisions are contrary to
our corporate governance principles and are not necessary to protect
stockholders from inadequate or coercive offers. If approved by stockholders,
our certificate of incorporation will be amended to delete all of Article VIII
and any cross-references to Article VIII contained in our certificate of
incorporation.
The deletion of Article VIII from our certificate of incorporation will
require the affirmative vote of holders of 80% of our outstanding common stock.
C. RIGHT TO AMEND THE BYLAWS
Our certificate of incorporation does not grant the board of directors
the right to amend our bylaws. The bylaws provide for certain of the day to day
operations of Nuevo, including the procedures for calling board of director and
stockholder meetings, the titles and responsibilities of officers and matters
relating to the transfer and appearance of stock certificates. The board of
directors believes that it is customary for the board to have the right to amend
the bylaws, and that the ability to amend the bylaws will allow Nuevo to better
respond to changes in applicable laws and business practices.
Under Delaware law, the stockholders will retain the right to amend the
bylaws by vote of holders of a majority of the outstanding voting shares. If
approved by the stockholders, the following provision will be added to the
certificate of incorporation:
"The board of directors may alter, amend or repeal the bylaws of the
corporation, or adopt new bylaws."
The adoption of the amendment to the certificate of incorporation to
grant the directors the right to amend the bylaws requires the affirmative vote
of holders of a majority of the shares of common stock outstanding on the record
date.
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<PAGE> 31
================================================================================
PROPOSAL III. APPROVAL OF OUR 1998 NON-EXECUTIVE EMPLOYEE STOCK PURCHASE PLAN:
- - --------------------------------------------------------------------------------
Our board of directors authorized the implementation of the 1998
Non-Executive Employee Stock Purchase Plan (the "1998 Purchase Plan"). Only our
employees who do not participate in our deferred compensation plan (which is
described above under "Executive Compensation") are entitled to participate in
the 1998 Purchase Plan. As described in more detail below, the 1998 Purchase
Plan allows our employees to use a portion of their salaries to purchase our
stock at a discount to the market price. The compensation committee believes
that the 1998 Purchase Plan more closely aligns the interests of participating
employees and stockholders by permitting employees to become stockholders.
The following is a summary of the material features of the 1998 Purchase Plan:
WHO MAY PARTICIPATE?
Any Nuevo employee who works at least 20 hours a week for five months
of the year. Our executive officers who participate in the deferred compensation
plan may not participate in this plan.
HOW DOES THE PLAN WORK?
Under the 1998 Purchase Plan our compensation committee designates
"purchase periods", which may be up to five years long. Each purchase period
will be for a one-month period unless our compensation committee specifies a
different period.
Each eligible employee may participate in the plan during a purchase
period by authorizing us to make periodic payroll deductions in increments of
1%, up to a maximum of 20%, of his or her compensation during the purchase
period. On the last day of each purchase period, the participant's payroll
deductions will be used to purchase our common stock.
HOW IS THE PURCHASE PRICE CALCULATED?
The purchase price for the shares of common stock will be equal to 85%
of the closing price of the common stock on the purchase date.
HOW MANY SHARES ARE SUBJECT TO THE PLAN?
We are reserving 25,000 shares for issuance under the plan. If, on any
purchase date, we are required to issue shares so that we would issue more than
25,000 shares under the plan, our compensation committee will prorate the shares
among participants so that no more then 25,000 shares are issued under the plan.
If we prorate the number of shares issued, we will return the payroll deductions
not used to purchase shares to the participants.
WHAT OTHER SPECIAL LIMITATIONS ARE THERE REGARDING THE PLAN?
The following limitations apply to the 1998 Purchase Plan:
o a purchase right may not be granted to an employee who owns 5%
or more of our outstanding voting stock;
o a purchase right may not permit a participant to purchase more
than $25,000 worth of our common stock in any calendar year;
o purchase rights are non-transferable, and may be exercised
only by a participant; and
o a participant will not have any rights as a stockholder, such
as the right to vote or receive dividends, until shares are
actually purchased under the plan.
WHEN DOES THE PLAN TERMINATE; HOW IS THE PLAN AMENDED?
The 1998 Purchase Plan will continue in existence until all 25,000
shares are purchased. Our board of directors may amend the Purchase Plan or
discontinue the Plan at any time to the extent permitted by law.
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<PAGE> 32
WHAT ARE THE MATERIAL FEDERAL TAX CONSEQUENCES OF THE PLAN?
The 1998 Purchase Plan is intended to be an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code. Under a
plan which so qualifies, no taxable income will be recognized by a participant,
and no deductions will be allowable to Nuevo, in connection with the grant or
the exercise of an outstanding purchase right. Taxable income will not be
recognized until there is a sale or other disposition of the shares acquired
under the 1998 Purchase Plan or in the event the participant should die while
still owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after his or her enrollment date into the purchase period in
which such shares were acquired or within one year after the actual purchase
date of those shares, then the participant will recognize ordinary income in the
year of sale or disposition. Such ordinary income will be equal to the amount by
which the fair market value of the shares on the purchase date exceeded the
purchase price paid for those shares, and Nuevo will be entitled to an income
tax deduction, for the taxable year in which such sale or disposition occurs,
equal in amount to such excess.
If the participant sells or disposes of the purchased shares more than
two years after his or her enrollment date into the purchase period in which
such shares were acquired and more than one year after the actual purchase date
of those shares, then the participant will recognize ordinary income in the year
of sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or (ii) 15% of the fair market value of the shares
on his or her enrollment date into the purchase period, and any additional gain
upon the disposition will be taxed as a long-term capital gain. Nuevo will not
be entitled to any income tax deduction with respect to such sale or
disposition.
If the participant still owns the purchased shares at the time of
death, the lesser of (i) the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or (ii) 15% of the fair market
value of the shares on his or her enrollment date into the purchase period in
which those shares were acquired will constitute ordinary income in the
year of death.
HOW WILL THE PLAN BE ACCOUNTED FOR?
Under current accounting rules, the issuance of our common stock under
the 1998 Purchase Plan will result in compensation expense chargeable against
our current earnings for the difference between the market price on the date of
purchase and the discount offered to employees.
WHAT VOTE IS REQUIRED TO APPROVE THE PLAN?
The affirmative vote of the holders of a majority of the shares of our
common stock present or represented by proxies at the annual meeting is required
to approve the adoption of the 1998 Purchase Plan.
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<PAGE> 33
================================================================================
PROPOSAL IV: APPROVAL OF OUR 1999 STOCK INCENTIVE PLAN:
- - --------------------------------------------------------------------------------
Our board of directors adopted the Nuevo Energy Company 1999 Stock
Incentive Plan in March 1999, subject to approval by our stockholders at the
annual meeting. Our board adopted the 1999 Plan to:
o closely associate the interests of our employees with those of
our stockholders to generate an increased incentive to
contribute to our future success and prosperity;
o provide our employees with a proprietary interest in Nuevo
commensurate with Nuevo's performance;
o maintain competitive compensation levels thereby attracting
and retaining highly competent and talented directors, and
employees; and
o provide an incentive for our employees to continue their
employment with us.
The following is a summary of the material provisions of the 1999 Plan.
WHO DECIDES AWARDS UNDER THE 1999 PLAN?
The 1999 Plan will be administered by our compensation committee. The
compensation committee will have sole authority to make awards under the 1999
Plan and to interpret the plan. The board of directors may delegate authority to
administer the plan to another committee.
WHO MAY PARTICIPATE IN THE 1999 PLAN?
All directors and employees of the Company and its subsidiaries are
eligible to participate in the 1999 Plan.
WHAT TYPE OF AWARDS MAY BE MADE UNDER THE PLAN?
There are three types of awards which may be made under the 1999 Plan:
grants of stock options, stock appreciation rights and performance shares. The
awards under the Plan may not be transferred by the recipient, except upon death
or disability.
STOCK OPTIONS. A stock option entitles the participant to purchase from
us, for the time period specified in the option, the number of shares at the
price specified in the option agreement. The purchase price per share subject to
an option may be set at any amount by the compensation committee. In the past,
the committee has set the purchase price of options granted to our employees at
the closing price of the common stock on the date of grant. Payment for shares
of common stock acquired upon exercise of an option may be made in cash, in
shares of our common stock, or in a combination of cash and stock.
Stock options may be subject to a vesting schedule, which provides that
the grantee does not have the right to exercise the option for a specified
period of time and that if employment is terminated prior to such time the
grantee loses the option. A stock option grant may also provide for the
circumstances under which the options terminate if the grantee ceases to be an
employee or director of Nuevo. A vesting schedule may also require the grantee
to achieve specified performance targets prior to vesting.
At the discretion of the compensation committee, stock options may be
granted as tax qualified incentive stock options. Tax qualified options must
have the following characteristics:
o incentive stock options may only be granted to our executive
officers and employees;
o incentive stock options may not be granted to any owner of 10%
or more of the total voting power of Nuevo;
o incentive stock options must have a termination date no more
than 10 years following the date of grant; and
o the purchase price of tax qualified incentive options must be
the fair market value of a share of common stock at the time
such option is granted.
STOCK APPRECIATION RIGHTS. Stock appreciation rights grant a
participant the right to receive, in cash, the difference between the market
price of our common stock on the date of exercise and an amount
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<PAGE> 34
specified in the award grant. A stock appreciation right award will specify the
exercise price of the grant, the procedure for determining the market price of
the stock on the date of exercise, and the term over which the grant may be
exercised. In addition, the grant of stock appreciation rights may be subject to
a vesting schedule and may be subject to forfeiture in such circumstances as
determined by the compensation committee.
STOCK GRANTS. The compensation committee may grant to participants
shares of stock or rights to receive shares of stock in any of the following
manners, as provided in an award agreement:
o Bonus stock: which refers to the grant of shares of common
stock as an award for past services or achieving or exceeding
past goals.
o Restricted shares: refers to the grant of shares of common
stock subject to forfeiture if the conditions established by
the compensation committee are not met, which generally relate
to continued employment.
o Restricted units: refers to the award of the right to receive
common stock in the future subject to restrictions which
generally relate to continued employment. If the restrictions
are not satisfied, the shares are not issued.
o Performance shares: which refers to the grant of common stock
subject to forfeiture if performance goals established by the
compensation committee are not satisfied. Such goals may
include increased cash flows, earnings, production or
reserves, or decreases in operating or general and
administrative expenses. The compensation committee may
measure the satisfaction of such goals over one time period or
over performance cycles.
o Performance units: which refers to the award of the right to
receive common stock if performance goals are met.
HOW MANY SHARES MAY BE ISSUED UNDER THE PLAN?
The total number of shares of common stock which may be received under
options issued under the plan, plus performance shares and stock appreciation
rights may not exceed 1,000,000 shares. The number of shares is subject to
adjustment in the event of certain dilutive changes in the number of outstanding
shares. Any shares subject to an award which are not used because the terms and
conditions of the award are not met may again be used for an award under the
1999 Plan.
WHEN DOES THE PLAN TERMINATE; HOW IS THE PLAN AMENDED?
No awards may be made under the 1999 Plan after March 30, 2009. The
1999 Plan may be amended by our board of directors. No amendment can impair the
rights of a holder of an outstanding award under the 1999 Plan without such
holder's consent.
WHAT HAPPENS IF THERE IS A CHANGE IN CONTROL OF NUEVO?
If there is a change in control of Nuevo, the compensation committee
may at its discretion do any or all of the following (i) accelerate any time
periods relating to exercise or realization of the award; (ii) cause the awards
to be assumed by the successor corporation; or (iii) cancel all outstanding
options as of the effective date of the change in control, provided that each
holder has the right to exercise such option in full for at least 30 days prior
to the change in control.
WHAT ARE THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES?
The federal income tax consequences, in general, of the 1999 Plan are as
follows:
(1) With respect to non-qualified stock options granted under the 1999
Plan: A participant receiving a grant will not recognize income and the company
will not be allowed a deduction at the time such an option is granted. When a
participant exercises a non-qualified stock option, the difference between the
option price and any higher market value of the stock on the date of exercise
will be ordinary income to the participant and will be allowed as a deduction
for federal income tax purposes to the company or its subsidiary or affiliate.
When a participant disposes of shares acquired by the exercise of the option,
any amount received in excess of the fair market value of the shares on the date
of exercise will be treated as a short-term or long-term capital gain, depending
upon the holding period of the shares. If the amount received is less than the
fair market value of the shares on the date of exercise, the loss will be
treated as a short-term or long-term capital loss, depending upon the holding
period of the shares.
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<PAGE> 35
(2) With respect to incentive stock options granted under the 1999 Plan: A
participant receiving a grant will not recognize income and the company will not
be allowed a deduction at the time such an option is granted. When a participant
exercises an incentive stock option while employed by the company or its
subsidiary or within the three-month (one year for participants on disability)
period after termination of employment, no ordinary income will be recognized by
the participant at that time (and no deduction will be allowed to the company),
but the excess of the fair market value of the shares acquired by such exercise
over the option price will be taken into account in determining the
participant's alternative minimum taxable income for purposes of the federal
alternative minimum tax applicable to individuals. If the shares acquired upon
exercise are not disposed of until more than two years after the date of grant
and more than one year after the date of transfer of the shares to the
participant (statutory holding periods), the excess of the sale proceeds over
the aggregate option price of such shares will be a long-term capital gain, and
Nuevo will not be entitled to any federal income tax deduction. Except in the
event of death, if the Shares are disposed of prior to the expiration of the
statutory holding periods (a "Disqualifying Disposition"), the excess of the
fair market value of such shares at the time of exercise over the aggregate
option price (but not more than the gain on the disposition if the disposition
is a transaction on which a loss, if sustained, would be recognized) will be
ordinary income at the time of such Disqualifying Disposition (and Nuevo or its
subsidiary will be entitled to a federal tax deduction in a like amount), and
the balance of the gain, if any, will be a capital gain (short-term or long-term
depending on the holding period).
(3) Special rule if option price is paid for in shares: If a
participant pays the exercise price of a non-qualified or incentive stock option
with previously-owned shares of our common stock and the transaction is not a
Disqualifying Disposition, the shares received equal to the number of shares
surrendered are treated as having been received in a tax-free exchange. The
shares received in excess of the number surrendered will not be taxable if an
incentive stock option is being exercised, but will be taxable as ordinary
income to the extent of their fair market value if a non-qualified stock option
is being exercised. The participant does not recognize income and Nuevo receives
no deduction as a result of the tax-free portion of the exchange transaction. If
the use of previously acquired incentive stock option shares to pay the exercise
price of another incentive stock option constitutes a Disqualifying Disposition,
the tax results are as described in (2) above. The income treatment will apply
to the shares disposed of, but will not affect the favorable tax treatment of
the shares received.
(4) With respect to performance shares granted under the 1999 Plan:
Unless a participant makes the election described below, a participant receiving
a grant will not recognize income and Nuevo will not be allowed a deduction at
the time such performance shares are granted. While shares remain subject to a
substantial risk of forfeiture, a participant will recognize compensation income
equal to the amount of the dividends received and the company will be allowed a
deduction in a like amount. When the shares cease to be subject to a substantial
risk of forfeiture, the excess of the fair market value of the shares on the
date the substantial risk of forfeiture ceases over the amount paid, if any, by
the participant for the shares will be ordinary income to the participant and
will be allowed as a deduction for federal income tax purposes to the company.
Upon disposition of the shares, the gain or loss recognized by the participant
will be treated as a capital gain or loss, and the capital gain or loss will be
short-term or long-term depending upon the period of time the shares are held by
the participant following cessation of the substantial risk of forfeiture.
However, by filing a Section 83(b) election with the Internal Revenue Service
within 30 days after the date of grant, a participant's ordinary income and
commencement of holding period and the company's deduction will be determined as
of the date of grant. In such a case, the amount of ordinary income recognized
by such a participant and the amount deductible by Nuevo will be equal to the
excess of the fair market value of the shares as of the date of grant over the
amount paid, if any, by the participant for the shares. If such election is made
and a participant thereafter forfeits his or her stock, no deduction will be
allowed for the amount previously included in such participant's income.
WHAT VOTE IS REQUIRED TO APPROVE THE PLAN?
We are submitting the Plan to our stockholders under a New York Stock
Exchange rule which requires stockholder approval of the Plan as a condition to
listing shares issued under the Plan on the New York Stock Exchange. The
affirmative vote of the holders of a majority of the shares of our common stock
voting at the annual meeting is required to approve the adoption of the 1999
Plan. In addition, in order for the approval of our stockholders to be
effective, the rules of the New York Stock Exchange require that a majority of
our shares of common stock be present and entitled to vote at the meeting. Under
these rules, broker non-votes will not be deemed present and entitled to vote at
the meeting.
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<PAGE> 36
================================================================================
PROPOSAL V. RATIFICATION OF THE SELECTION OF OUR 1999 AUDITORS:
- - --------------------------------------------------------------------------------
The board of directors has appointed KPMG LLP ("KPMG"), independent
public accountants, for the examination of the accounts and audit of our
financial statements for the year ending December 31, 1999. At the annual
meeting, the board of directors will present a proposal to the stockholders to
approve and ratify the engagement of KPMG. A representative of KPMG will be
present and will have the opportunity to make a statement, if he desires, and to
respond to appropriate questions. An adverse vote will be considered as a
direction to our audit committee to select other auditors in the following year.
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<PAGE> 37
REVOCABLE PROXY
NUEVO ENERGY COMPANY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NUEVO
ENERGY COMPANY ("COMPANY") FOR USE AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON MAY 12, 1999 AND AT ANY ADJOURNMENT THEREOF.
The undersigned, being a stockholder of the Company as of April 5,
1999, hereby authorizes Douglas L. Foshee and Robert M. King or any successors
thereto as proxies with full powers of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of the Company to be held at
the Four Seasons Hotel, 1300 Lamar, Houston, Texas 77010, on Wednesday May 12,
1999 at 9:00 a.m., Central Daylight Time, and at any adjournment of said
meeting, and thereat to act with respect to all votes that the undersigned would
be entitled to cast, if then personally present, as follows:
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked for all nominees listed
to the contrary below) below
Nominees for Class III Director : David H. Batchelder, Robert L. Gerry
III and David Ross III
(INSTRUCTION: To withhold authority to vote for one or more of the
nominees, write the name of the nominee in the space provided.)
2. PROPOSAL to amend the Company's certificate of incorporation and
by-laws to remove the provisions providing for a classified board of
directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL to amend the Company's certificate of incorporation to delete
Article VIII dealing with business combinations, and any
cross-references to Article VIII in the certificate.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. PROPOSAL to amend the Company's certificate of incorporation to permit
the board of directors to amend the by-laws.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. PROPOSAL to approve the 1998 Non-Executive Employee Stock Purchase
Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. PROPOSAL to approve the 1999 Stock Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. PROPOSAL to ratify the appointment of KPMG LLP as the Company's
independent auditors for the fiscal year ending December 31, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
8. In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, the
election of any person as a director if a nominee is unable to serve or
for good cause will not serve, matters incident to the conduct of the
meeting, and upon such other matters as may properly come before the
meeting.
The Board of Directors recommends that you vote FOR the Board of
Directors' nominees listed above and FOR Proposals 2 through 7. Shares of common
stock of the Company will be voted as specified. IF NO SPECICIATION IS MADE,
SHARES WILL BE VOTED FOR THE ELECTION OF THE BOARD OF DIRECTORS' NOMINEES TO THE
BOARD OF DIRECTORS, FOR PROPOSALS 2 THROUGH 7, AND OTHERWISE AT THE DISCRETION
OF THE PROXIES. THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED AT THE
ANNUAL MEETING.
<PAGE> 38
The undersigned hereby acknowledges receipt of a Notice of Annual
Meeting of the Stockholders of the Company called for May 12, 1999, a Proxy
Statement for the Annual Meeting and the 1998 Annual Report to Stockholders
(which may have been previously mailed).
Dated: ____________________________, 1999
_________________________________________
_________________________________________
Signature(s)
PLEASE SIGN THIS EXACTLY AS YOUR NAME(S)
APPEAR(S) ON THIS PROXY. WHEN SIGNING IN A
REPRESENTATIVE CAPACITY, PLEASE GIVE TITLE.
WHEN SHARES ARE HELD JOINTLY, ONLY ONE
HOLDER NEED SIGN.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE> 39
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
99.a 1999 Stock Incentive Plan
99.b 1998 Employee Stock Purchase Plan
<PAGE> 1
================================================================================
NUEVO ENERGY COMPANY
1999 STOCK INCENTIVE PLAN
March 30, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. GENERAL...............................................................................................1
SECTION 1.1. PURPOSE..........................................................................................1
SECTION 1.2. ADMINISTRATION...................................................................................1
SECTION 1.3. ELIGIBILITY FOR PARTICIPATION....................................................................1
SECTION 1.4. TYPES OF AWARDS UNDER PLAN.......................................................................2
SECTION 1.5. AGGREGATE LIMITATION ON AWARDS...................................................................2
SECTION 1.6. EFFECTIVE DATE AND TERM OF PLAN..................................................................3
ARTICLE II. STOCK OPTIONS........................................................................................3
SECTION 2.1. AWARD OF STOCK OPTIONS...........................................................................3
SECTION 2.2. STOCK OPTION AGREEMENTS..........................................................................3
SECTION 2.3. STOCK OPTION PRICE...............................................................................3
SECTION 2.4. TERM AND EXERCISE................................................................................3
SECTION 2.5. MANNER OF PAYMENT................................................................................3
SECTION 2.6. ISSUANCE OF CERTIFICATES.........................................................................4
SECTION 2.7. DEATH, RETIREMENT AND TERMINATION OF EMPLOYMENT OF OPTIONEE......................................4
SECTION 2.8. EFFECT OF EXERCISE...............................................................................4
ARTICLE III. INCENTIVE STOCK OPTIONS.............................................................................4
SECTION 3.1. AWARD OF INCENTIVE STOCK OPTIONS.................................................................4
SECTION 3.2. INCENTIVE STOCK OPTION...........................................................................4
SECTION 3.3. INCENTIVE STOCK OPTION PRICE.....................................................................5
SECTION 3.4. TERM AND EXERCISE................................................................................5
SECTION 3.5. MAXIMUM AMOUNT OF INCENTIVE STOCK OPTION GRANT...................................................5
SECTION 3.6. DEATH OF OPTIONEE................................................................................5
SECTION 3.7. RETIREMENT OR DISABILITY.........................................................................5
SECTION 3.8. TERMINATION FOR OTHER REASONS....................................................................5
SECTION 3.9. TERMINATION FOR CAUSE............................................................................5
SECTION 3.10. APPLICABILITY OF STOCK OPTIONS SECTIONS.........................................................5
SECTION 3.11. CODE REQUIREMENTS...............................................................................6
ARTICLE IV. STOCK APPRECIATION RIGHTS............................................................................6
SECTION 4.1. AWARD OF STOCK APPRECIATION RIGHTS...............................................................6
SECTION 4.2. SAR AGREEMENTS...................................................................................6
SECTION 4.3. SAR EXERCISE PRICE...............................................................................6
SECTION 4.4. TERM AND EXERCISE................................................................................6
SECTION 4.5. EXERCISE OF SAR..................................................................................6
ARTICLE V. BONUS STOCK AWARDS....................................................................................7
SECTION 5.1. AWARD OF BONUS STOCK.............................................................................7
SECTION 5.2. STOCK BONUS AGREEMENTS...........................................................................7
SECTION 5.3. TRANSFER RESTRICTION.............................................................................7
ARTICLE VI. RESTRICTED STOCK.....................................................................................7
SECTION 6.1. AWARD OF RESTRICTED STOCK........................................................................7
SECTION 6.2. RESTRICTED STOCK AGREEMENTS......................................................................7
SECTION 6.3. STOCKHOLDER RIGHTS...............................................................................7
SECTION 6.4. CERTIFICATES.....................................................................................7
SECTION 6.5. PERFORMANCE-BASED AWARDS.........................................................................7
SECTION 6.6. TERMINATION OF EMPLOYMENT........................................................................8
ARTICLE VII. RESTRICTED STOCK UNITS..............................................................................8
SECTION 7.1. AWARD OF RESTRICTED STOCK UNITS..................................................................8
SECTION 7.2. RESTRICTED STOCK UNIT AGREEMENTS.................................................................8
SECTION 7.3. STOCKHOLDER RIGHTS...............................................................................8
SECTION 7.4. CERTIFICATES.....................................................................................8
SECTION 7.5. PERFORMANCE-BASED AWARDS.........................................................................8
SECTION 7.6. TERMINATION OF EMPLOYMENT........................................................................8
ARTICLE VIII. PERFORMANCE SHARE AWARDS...........................................................................9
SECTION 8.1. AWARDS GRANTED BY PLAN ADMINISTRATOR.............................................................9
SECTION 8.2. AMOUNT OF AWARD..................................................................................9
SECTION 8.3. COMMUNICATION OF AWARD...........................................................................9
SECTION 8.4. AMOUNT OF AWARD PAYABLE..........................................................................9
SECTION 8.5. ADJUSTMENTS......................................................................................9
SECTION 8.6. PAYMENTS OF AWARDS...............................................................................9
SECTION 8.7. TERMINATION OF EMPLOYMENT........................................................................9
SECTION 8.8. TRANSFER RESTRICTION.............................................................................9
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IX. PERFORMANCE UNITS...................................................................................10
SECTION 9.1. AWARDS GRANTED BY PLAN ADMINISTRATOR............................................................10
SECTION 9.2. AMOUNT OF AWARD.................................................................................10
SECTION 9.3. COMMUNICATION OF AWARD..........................................................................10
SECTION 9.4. AMOUNT OF AWARD PAYABLE.........................................................................10
SECTION 9.5. ADJUSTMENTS.....................................................................................10
SECTION 9.6. PAYMENTS OF AWARDS..............................................................................10
SECTION 9.7. TERMINATION OF EMPLOYMENT.......................................................................10
ARTICLE X. MISCELLANEOUS........................................................................................11
SECTION 10.1. GENERAL RESTRICTION...........................................................................11
SECTION 10.2. NON-ASSIGNABILITY..............................................................................11
SECTION 10.3. WITHHOLDING TAXES..............................................................................11
SECTION 10.4. RIGHT TO TERMINATE EMPLOYMENT..................................................................11
SECTION 10.5. NON-UNIFORM DETERMINATIONS.....................................................................11
SECTION 10.6. RIGHTS AS A STOCKHOLDER........................................................................11
SECTION 10.7. DEFINITIONS....................................................................................11
SECTION 10.8. LEAVES OF ABSENCE..............................................................................13
SECTION 10.9. NEWLY ELIGIBLE EMPLOYEES.......................................................................13
SECTION 10.10. ADJUSTMENTS...................................................................................13
SECTION 10.11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE....................................................13
SECTION 10.12. AMENDMENT OF THE PLAN.........................................................................14
SECTION 10.13. NO LOSS OF RIGHTS OF GRANTEE OF AN AWARD......................................................14
SECTION 10.14. DIVIDENDS AND DIVIDEND EQUIVALENTS............................................................14
SECTION 10.15. FORM AND TIME OF ELECTIONS....................................................................14
SECTION 10.16. PERFORMANCE BASED COMPENSATION................................................................15
SECTION 10.17. DEFERRAL......................................................................................15
</TABLE>
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<PAGE> 4
NUEVO ENERGY COMPANY
1999 STOCK INCENTIVE PLAN
ARTICLE I. GENERAL
Section 1.1. Purpose. The purposes of this Stock Incentive Plan (the
"Plan") are to: (1) associate the interests of the management of Nuevo Energy
Company and its Subsidiaries and affiliates (collectively referred to as the
"Company") closely with the stockholders to generate an increased incentive to
contribute to the Company's future success and prosperity, thus enhancing the
value of the Company for the benefit of its stockholders; (2) provide management
with a proprietary ownership interest in the Company commensurate with Company
performance, as reflected in increased stockholder value; (3) maintain
competitive compensation levels thereby attracting and retaining highly
competent and talented directors, employees and consultants; and (4) provide an
incentive to management for continuous employment with the Company. Certain
capitalized terms are defined in Section 10.7.
Section 1.2. Administration.
(a) The Plan shall be administered by a duly constituted committee of
the Board of Directors consisting of at least two members of the Board of
Directors, all of whom shall be both a Non-Employee Director and an Outside
Director unless otherwise designated by the Board of Directors. Such
administrating committee shall be referred to herein as the "Plan
Administrator." The Plan Administrator may delegate to one or more executive
officers of the Company the power to make Awards to individuals eligible to
participate in the Plan pursuant to Section 1.3 who are not subject to Section
16(a) or 16(b) of the Exchange Act, provided the Plan Administrator shall fix
the maximum amount of such Awards for the group and the maximum for any one
Participant.
(b) The Plan Administrator shall have the authority, in its sole
discretion and from time to time to:
(i) designate the directors, officers, key employees and
consultants of the Company and its Subsidiaries eligible to participate
in the Plan;
(ii) grant Awards provided in the Plan in such form and amount
as the Plan Administrator shall determine;
(iii) impose such limitations, restrictions and conditions,
not inconsistent with this Plan, upon any such Award as the Plan
Administrator shall deem appropriate; and
(iv) interpret the Plan and any agreement, instrument or other
document executed in connection with the Plan, adopt, amend and rescind
rules and regulations relating to the Plan, and make all other
determinations and take all other action necessary or advisable for the
implementation and administration of the Plan.
(c) Decisions and determinations of the Plan Administrator on all
matters relating to the Plan shall be in its sole discretion and shall be final,
conclusive and binding upon all persons, including the Company, any Participant,
any stockholder of the Company, any director, any employee and any consultant.
No member of any committee acting as Plan Administrator shall be liable for any
action taken or decision made relating to the Plan or any Award thereunder.
Section 1.3. Eligibility for Participation. Participants in the Plan
shall be selected by the Plan Administrator from the directors, executive
officers and other key employees and consultants of the Company and executive
officers and key employees and consultants of any Subsidiary of the Company who
have the capability of making a substantial contribution to the success of the
Company. In making this selection and in determining the form and amount of
Awards, the Plan Administrator shall consider any factors deemed relevant,
including the individual's functions, responsibilities, value of services to the
Company and past and potential contributions to the Company's profitability and
growth.
Section 1.4. Types of Awards Under Plan. Awards under the Plan may be
in the form of one or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
<PAGE> 5
(iii) Stock Appreciation Rights, as described in Article IV;
(iv) Bonus Stock, as described in Article V;
(v) Restricted Stock, as described in Article VI;
(vi) Restricted Stock Units, as described in Article VII;
(vii) Performance Shares, as described in Article VIII; and/or
(viii) Performance Units, as described in Article IX.
Awards under the Plan shall be evidenced by an agreement between the Company and
the recipient of the Award ("Award Agreement"), in form and substance
satisfactory to the Plan Administrator, and not inconsistent with this Plan.
Award Agreements may provide such vesting schedules for Stock Options, Incentive
Stock Options, Bonus Stock, Stock Appreciation Rights, Restricted Stock,
Restricted Stock Units, Performance Shares and Performance Units, and such other
terms, conditions and provisions as are not inconsistent with the terms of this
Plan. Subject to the express provisions of the Plan, and within the limitations
of the Plan, the Plan Administrator may modify, extend or renew outstanding
Award Agreements, or accept the surrender of outstanding Awards and authorize
the granting of new Awards in substitution therefor. However, except as provided
in Sections 10.1(i), 10.1(ii), 10.1(iii) and 10.11(d)(iii) of this Plan, no
modification of an Award shall impair the rights of the holder thereof without
his or her consent.
Section 1.5. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the Plan shall be
authorized and unissued or treasury shares of Common Stock of the Company
("Common Stock"). The maximum number of shares of Common Stock which may be
issued pursuant to Awards issued under the Plan shall be 1,000,000 shares, which
may be increased by the Board of Directors pursuant to Section 10.12.
(b) For purposes of calculating the maximum number of shares of Common
Stock which may be issued under the Plan at any time:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) under the Plan shall be
counted when issued upon exercise of a Stock Option or Incentive Stock
Option; and
(ii) only the shares issued (including the shares, if any,
withheld for tax withholding requirements) as a result of an exercise
of a Stock Appreciation Right shall be counted;
(iii) only the net shares issued (including the shares, if
any, withheld for tax withholding requirements) shall be counted when
shares of Common Stock are used as full or partial payment for shares
issued upon exercise of a Stock Option or Incentive Stock Option; and
(iv) only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) as Bonus Stock, Restricted
Stock, Restricted Stock Units, Performance Shares or Performance Units
shall be counted (shares reacquired by the Company because of failure
to achieve a performance target or failure to become fully vested for
any other reason shall again be available for issuance under the Plan).
(c) Any shares of Common Stock subject to a Stock Option or Incentive
Stock Option, which for any reason is terminated unexercised or expires shall
again be available for issuance under the Plan, but shares subject to a Stock
Option or Incentive Stock Option which are not issued as a result of the
exercise of a tandem Stock Appreciation Right shall not again be available for
issuance under the Plan.
Section 1.6. Effective Date and Term of Plan
(a) The Plan shall become effective on the date adopted by the Board of
Directors, subject to approval by the holders of the Company's Common Stock as
required by the rules of the NYSE.
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<PAGE> 6
(b) The Plan and all Awards made under the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
ARTICLE II. STOCK OPTIONS
Section 2.1. Award of Stock Options. The Plan Administrator may from
time to time, and subject to the provisions of the Plan and such other terms and
conditions as the Plan Administrator may prescribe, grant to any person eligible
to participate in the Plan one or more options to purchase for cash or shares
the number of shares of Common Stock ("Stock Options") allotted by the Plan
Administrator. The date a Stock Option is granted shall mean the date selected
by the Plan Administrator as of which the Plan Administrator allots a specific
number of shares to a Participant pursuant to the Plan.
Section 2.2. Stock Option Agreements. The grant of a Stock Option shall
be evidenced by a written Award Agreement, executed by the Company and the
holder of a Stock Option (the "Optionee"), stating the number of shares of
Common Stock subject to the Stock Option evidenced thereby, and in such form as
the Plan Administrator may from time to time determine.
Section 2.3. Stock Option Price. The Option Price per share of Common
Stock deliverable upon the exercise of a Stock Option shall be 100% of the Fair
Market Value of a share of Common Stock on the date the Stock Option is granted,
unless otherwise determined by the Plan Administrator.
Section 2.4. Term and Exercise. A Stock Option shall not be exercisable
prior to six months from the date of its grant, unless a shorter period is
provided by the Plan Administrator or by another Section of this Plan, and may
be subject to such vesting scheduling and term ("Option Term") as the Plan
Administrator may provide in an Award Agreement. No Stock Option shall be
exercisable after the expiration of its Option Term. Unless otherwise provided
by the Plan Administrator, the Option Term shall be 10 years.
Section 2.5. Manner of Payment. Each Award Agreement providing for
Stock Options shall set forth the procedure governing the exercise of the Stock
Option granted thereunder subject to the following:
(a) Subject to the following provisions of this Section 2.5,
upon the exercise in respect of any shares of Common Stock subject to
the Stock Option, the Optionee shall pay to the Company, in full, the
Option Price for such shares (except that, in the case of an exercise
arrangement approved by the Plan Administrator and described in Section
2.5(c)), payment may be made as soon as practicable after the exercise.
(b) The Option Price shall be payable in cash or, if
authorized by the Plan Administrator, by tendering shares of Common
Stock in a manner acceptable to the Plan Administrator and valued at
Fair Market Value as of the day of exercise of the Stock Option, or in
any combination thereof approved by the Plan Administrator.
(c) The Plan Administrator may permit an Optionee to elect to
pay the Option Price upon the exercise of a Stock Option through a
cashless exercise procedure approved by the Plan Administrator by
irrevocably authorizing a broker to sell shares of Common Stock (or a
sufficient portion of the shares) acquired upon exercise of the Stock
Option and remit to the Company a sufficient portion of the sale
proceeds to pay the entire Option Price and any tax withholding
resulting from such exercise.
Section 2.6. Issuance of Certificates. As soon as practicable after
receipt of payment, the Company shall deliver to the Optionee a certificate or
certificates for such shares of Common Stock unless (i) such certificate or
certificates have been previously delivered to a broker pursuant to Section
2.5(c) or (ii) the Award Agreement for such Stock Options allows the Plan
Administrator or the Optionee to defer delivery of such certificates. The
Optionee shall become a stockholder of the Company with respect to Common Stock
represented by share certificates so issued and as such shall be fully entitled
to receive dividends, to vote and to exercise all other rights of a stockholder
unless the Plan Administrator, in its discretion, imposes conditions,
restrictions or contingencies with respect to such shares in the applicable
Award Agreement.
Section 2.7. Death, Retirement and Termination of Employment of
Optionee. Unless otherwise provided in an Award Agreement or otherwise agreed to
by the Plan Administrator:
(a) Upon the death of the Optionee, any rights to the extent
exercisable on the date of death may be exercised by the Optionee's
estate, or by a person who acquires
-3-
<PAGE> 7
the right to exercise such Stock Option by bequest or inheritance or by
reason of the death of the Optionee, provided that such exercise occurs
within both (i) the remaining Option Term of the Stock Option and (ii)
one year after the Optionee's death. The provisions of this Section
shall apply notwithstanding the fact that the Optionee's employment may
have terminated prior to death, but only to the extent of any Stock
Options exercisable on the date of death.
(b) Upon termination of the Optionee's employment by reason of
retirement or permanent disability (as each is determined by the Plan
Administrator), the Optionee may exercise any Stock Options, provided
such option exercise occurs within both (i) the remaining Option Term
of the Stock Option and (ii) six months (in the case of permanent
disability) or three months (in the case of retirement).
(c) Upon termination of the Optionee's employment by reason
other than death, retirement, disability or cause (as each is
determined by the Plan Administrator), the Optionee may exercise any
Stock Options, provided such option exercise occurs within both (i) the
remaining Option Term of the Stock Option and (ii) 30 days of the date
of termination.
(d) Except as provided in Subsections (a), (b) and (c) of this
Section 2.7, all Stock Options shall terminate immediately upon the
termination of the Optionee's employment.
Section 2.8. Effect of Exercise. The exercise of any Stock Option shall
cancel that number of tandem SARs, if any, which is equal to the number of
shares of Common Stock purchased pursuant to said Stock Option unless otherwise
agreed by the Plan Administrator in an Award Agreement or otherwise.
ARTICLE III. INCENTIVE STOCK OPTIONS
Section 3.1. Award of Incentive Stock Options. The Plan Administrator
may, from time to time and subject to the provisions of the Plan and such other
terms and conditions as the Plan Administrator may prescribe, grant to any
officer or key employee who is eligible to participate in the Plan one or more
"incentive stock options" (intended to qualify as such under the provisions of
Section 422 of the Code ("Incentive Stock Options")) to purchase for cash or
shares the number of shares of Common Stock allotted by the Plan Administrator.
No Incentive Stock Options shall be granted under the Plan after the tenth
anniversary of the effective date of the Plan. The date an Incentive Stock
Option is granted shall mean the date selected by the Plan Administrator as of
which the Plan Administrator allots a specific number of shares to a Participant
pursuant to the Plan. Notwithstanding the foregoing, Incentive Stock Options
shall not be granted to any owner of 10% or more of the total combined voting
power of the Company and its Subsidiaries.
Section 3.2. Incentive Stock Option. The grant of an Incentive Stock
Option shall be evidenced by a written Award Agreement, executed by the Company
and the holder of an Incentive Stock Option (the "Optionee"), stating the number
of shares of Common Stock subject to the Incentive Stock Option evidenced
thereby, and in such form as the Plan Administrator may from time to time
determine.
Section 3.3. Incentive Stock Option Price. The Option Price per share
of Common Stock deliverable upon the exercise of an Incentive Stock Option shall
be 100% of the Fair Market Value of a share of Common Stock on the date the
Incentive Stock Option is granted.
Section 3.4. Term and Exercise. Each Incentive Stock Option shall not
be exercisable prior to six months from the date of its grant and unless a
shorter period is provided by the Plan Administrator or another Section of this
Plan, may be exercised during a period of ten years from the date of grant
thereof (the "Option Term") and may be subject to such vesting scheduling as the
Plan Administrator may provide in an Award Agreement. No Incentive Stock Option
shall be exercisable after the expiration of its Option Term.
Section 3.5. Maximum Amount of Incentive Stock Option Grant. The
aggregate Fair Market Value (determined on the date the Incentive Stock Option
is granted) of Common Stock with respect to which Incentive Stock Options first
become exercisable by an Optionee during any calendar year (under all plans of
the Optionee's employer corporations and their parent and subsidiary
corporations) shall not exceed $100,000.
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Section 3.6. Death of Optionee. Unless otherwise provided in an Award
Agreement or otherwise agreed to by the Plan Administrator:
(a) Upon the death of the Optionee, any Incentive Stock Option
exercisable on the date of death may be exercised by the Optionee's
estate or by a person who acquires the right to exercise such Incentive
Stock Option by bequest or inheritance or by reason of the death of the
Optionee, provided that such exercise occurs within both (i) the
remaining Option Term of the Incentive Stock Option and (ii) one year
after the Optionee's death.
(b) The provisions of this Section shall apply notwithstanding
the fact that the Optionee's employment may have terminated prior to
death, but only to the extent of any Incentive Stock Options
exercisable on the date of death.
Section 3.7. Retirement or Disability. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, upon the
termination of the Optionee's employment by reason of permanent disability or
retirement (as each is determined by the Plan Administrator), the Optionee may
exercise any Incentive Stock Options, provided such option exercise occurs
within both (i) the remaining Option Term of the Incentive Stock Option and (ii)
six months (in the case of permanent disability) or three months (in the case of
retirement). Notwithstanding the terms of an Award Agreement, the tax treatment
available pursuant to Section 422 of the Code upon the exercise of an Incentive
Stock Option shall not be available to an Optionee who exercises any Incentive
Stock Options more than (i) one year after the date of termination of employment
due to permanent disability or (ii) three months after the date of termination
of employment due to retirement.
Section 3.8. Termination for Other Reasons. Unless otherwise provided
in an Award Agreement or otherwise agreed to by the Plan Administrator, except
as provided in Sections 3.6 and 3.7, upon termination of the Optionee's
employment by reason other than death, retirement, disability or cause (as each
is determined by the Plan Administrator), the Optionee may exercise any
Incentive Stock Options, provided such option exercise occurs within both (i)
the remaining Option Term of the Incentive Stock Option and (ii) 30 days of the
date of termination.
Section 3.9. Termination for Cause. Unless otherwise provided in an
Award Agreement or otherwise agreed to by the Plan Administrator, except as
provided in Sections 3.6, 3.7 and 3.8, all Incentive Stock Options shall
terminate immediately upon the termination of the Optionee's employment.
Section 3.10. Applicability of Stock Options Sections. Sections 2.5,
Manner of Payment; 2.6, Issuance of Certificates; and 2.8, Effect of Exercise,
applicable to Stock Options, shall apply equally to Incentive Stock Options.
Said Sections are incorporated by reference in this Article III as though fully
set forth herein.
Section 3.11. Code Requirements. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Code Section 422. Anything in the Plan to the contrary notwithstanding, no
term of the Plan relating to Incentive Stock Options shall be interpreted,
amended or altered, nor shall any discretion or authority granted under the Plan
be exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Code Section 422, unless the Participant has first requested the change
that will result in such disqualification. If Code Section 422 is amended to
change any requirements to qualify for treatment as Incentive Stock Options the
Board of Directors may amend the Plan to conform to any such change.
ARTICLE IV. STOCK APPRECIATION RIGHTS
Section 4.1. Award of Stock Appreciation Rights. The Plan Administrator
may from time to time, and subject to the provisions of the Plan and such other
terms and conditions as the Plan Administrator may prescribe, grant to any
person eligible to participate in the Plan one or more stock appreciation rights
("SAR") entitling the Participant, upon exercise, to receive, in cash or shares
of Common Stock, value equal to (or otherwise based on) the excess of: (i) the
Fair Market Value of a specified number of shares of Common Stock at the time of
exercise over (ii) an Exercise Price established by the Plan Administrator, or,
if granted in tandem with an Option, the Option Price with respect to shares
under the tandem Option. The date an SAR is granted shall mean the date selected
by the Plan Administrator as of which the Plan Administrator specifies the
number of shares upon which the SAR will be based.
Section 4.2. SAR Agreements. The grant of an SAR shall be evidenced by
a written Award Agreement, executed by the Company and the holder of the SAR
("SAR Holder") stating the number of
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<PAGE> 9
shares of Common Stock upon which the SAR is based, and in such form as the Plan
Administrator may from time to time determine. SARs may be granted in tandem
with all or any portion of a previously or contemporaneously granted Option.
Section 4.3. SAR Exercise Price. The exercise price per share of Common
Stock ("Exercise Price") used to determine the value to be received upon the
exercise of an SAR shall be 100% of the Fair Market Value of a share of Common
Stock on the date the SAR is granted unless otherwise determined by the Plan
Administrator.
Section 4.4. Term and Exercise. An SAR that is not in tandem with an
Option shall not be exercisable prior to six months from the date of its grant,
unless a shorter period is provided by the Plan Administrator or by another
Section of this Plan, and may be subject to such vesting scheduling and term
("SAR Term") as the Plan Administrator may provide in an Award Agreement. No SAR
shall be exercisable after the expiration of its SAR Term. An SAR granted in
tandem with an Option is exercisable at the time the tandem Option is
exercisable, unless the Plan Administrator provides for a longer period. A
tandem SAR shall be subject to the same Option Term as the tandem Option to
which it relates, unless the Plan Administrator specifies a different SAR Term
in the applicable Award Agreement. The exercise of an SAR granted in tandem with
an Option will result in the cancellation of an equal number of corresponding
Options related to the tandem SAR. The Plan Administrator may, in its
discretion, prescribe additional conditions to the exercise of any SAR.
Section 4.5. Exercise of SAR. Each Award Agreement providing for SARs
shall set forth procedures governing the exercise of the SAR granted thereunder.
Settlement of SARs may be made in shares of Common Stock (valued at their Fair
Market Value at the time of exercise), in cash or in a combination thereof, as
determined in the discretion of the Plan Administrator. As soon as practicable
after the exercise of an SAR for shares of Common Stock, the Company shall
deliver to the SAR Holder a certificate or certificates for such shares of
Common Stock unless the Award Agreement for such SARs allows the Plan
Administrator or the SAR Holder to defer delivery of such shares of Common
Stock. The SAR Holder shall become a stockholder of the Company with respect to
Common Stock represented by share certificates so issued and as such shall be
fully entitled to receive dividends, to vote and to exercise all other rights of
a stockholder, unless the Plan Administrator, in its discretion, imposes
conditions, restrictions or contingencies with respect to such shares in the
applicable Award Agreement.
ARTICLE V. BONUS STOCK AWARDS
Section 5.1. Award of Bonus Stock. The Plan Administrator may from time
to time, and subject to the provisions of this Plan and such other terms and
conditions as the Plan Administrator may prescribe, grant to any person eligible
to participate in the Plan shares of Common Stock ("Bonus Stock").
Section 5.2. Bonus Stock Agreements. The grant of a Bonus Stock shall
be evidenced by a written Award Agreement, executed by the Company and the
recipient of Bonus Stock, in such form as the Plan Administrator may from time
to time determine, providing for the terms of such grant, including any vesting
schedule, restrictions on the transfer of such Common Stock or other matters.
Section 5.3. Transfer Restriction. Any Award Agreement providing for
the issuance of Bonus Stock to any person who, at the time of grant, is a person
described in Section 16(a) under the Exchange Act shall provide that such Common
Stock cannot be resold for a period of six months following the grant of such
Bonus Stock.
ARTICLE VI. RESTRICTED STOCK
Section 6.1. Award of Restricted Stock. The Plan Administrator may
grant shares of restricted stock, the vesting of which is subject to certain
conditions established by the Plan Administrator with some or all of those
conditions relating to events (such as performance or continued employment)
occurring after the date of grant ("Restricted Stock"). The date Restricted
Stock is granted shall mean the date selected by the Plan Administrator as of
which the Plan Administrator allots a specified number of shares to a
Participant pursuant to the Plan.
Section 6.2. Restricted Stock Agreements. The grant of Restricted Stock
shall be evidenced by a written Award Agreement, executed by the Company and the
holder of the Restricted Stock stating the number of shares of Common Stock that
are subject to the Restricted Stock Award and the conditions to vesting, and in
such form as the Plan Administrator may from time to time determine.
Section 6.3. Stockholder Rights. Unless otherwise provided by the Plan
Administrator, Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered during the
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<PAGE> 10
Restricted Period. Except for such restrictions and any other restrictions
imposed by the Plan Administrator, holders of Restricted Stock shall have all of
the rights of a stockholder, including, but not limited to, the right to vote
such shares and the right to receive all dividends paid on such shares.
Section 6.4. Certificates. Unless otherwise provided by the Plan
Administrator, each certificate issued in respect of shares of Restricted Stock
granted under the Plan shall be registered in the name of the holder of such
Restricted Stock and shall be deposited with the Company with a stock power
endorsed in blank. Upon the vesting of Restricted Stock, such Restricted Stock
shall be transferred free of all restrictions to the Participant.
Section 6.5. Performance-Based Awards. The Plan Administrator may award
performance-based Restricted Stock that becomes vested (or for which vesting is
accelerated) upon the achievement of Performance Targets established pursuant to
the requirements of Section 8.4 by the Plan Administrator. The Plan
Administrator may specify the number of shares that will vest upon the
achievement of different levels of performance. Except as otherwise provided by
the Plan Administrator, achievement of maximum target levels during the
Performance Cycle shall result in the Participant's receipt of the full
performance-based Restricted Stock Award. For achievement of the minimum target,
but less than the maximum target, the Plan Administrator may establish a portion
of the Award that the Participant is entitled to receive. Any performance-based
Restricted Stock that is not earned by the end of a Performance Cycle shall be
forfeited unless the Plan Administrator provides otherwise in the applicable
Award Agreement.
Section 6.6. Termination of Employment. Unless the applicable Award
Agreement provides for vesting upon death, disability, retirement or other
termination of employment, upon any such termination of employment of a
Participant prior to vesting of Restricted Stock, all outstanding and unvested
Awards of Restricted Stock to such Participant shall be canceled, shall not vest
and shall be returned to the Company.
ARTICLE VII. RESTRICTED STOCK UNITS
Section 7.1. Award of Restricted Stock Units. The Plan Administrator
may grant rights to receive stock in the future, the vesting of which is subject
to certain conditions established by the Plan Administrator with some or all of
those conditions relating to events (such as performance or continued
employment) occurring after the date of grant ("Restricted Stock Units"). The
date a Restricted Stock Unit is granted shall mean the date selected by the Plan
Administrator as of which the Plan Administrator allots a specified number of
shares to a Participant pursuant to the Plan.
Section 7.2. Restricted Stock Unit Agreements. The grant of Restricted
Stock Units shall be evidenced by a written Award Agreement, executed by the
Company and the holder of the Restricted Stock Unit stating the number of shares
of Common Stock that are subject to the Restricted Stock Unit Award and the
conditions to vesting, and in such form as the Plan Administrator may from time
to time determine.
Section 7.3. Stockholder Rights. Except as otherwise provided in this
Section 7.3, prior to the vesting and settlement of Restricted Stock Units in
shares of Common Stock, holders of Restricted Stock Units shall not have any of
the rights of a stockholder. Unless the Plan Administrator provides otherwise,
holders of Restricted Stock Units shall have the right, subject to any
restrictions or vesting requirements imposed by the Plan Administrator, to
receive a payment from the Company in lieu of a dividend in an amount equal to
such dividends and at such times as dividends would otherwise be paid.
Section 7.4. Certificates. As soon as practicable after the vesting of
Restricted Stock Units, the Company shall deliver to the Participant a
certificate or certificates for such shares of Common Stock unless the Award
Agreement for such Restricted Stock Units allows the Plan Administrator or the
Participant to defer delivery of such shares of Common Stock. The Participant
shall become a stockholder of the Company with respect to Common Stock
represented by share certificates so issued and as such shall be fully entitled
to receive dividends, to vote and to exercise all other rights of a stockholder
unless the Plan Administrator, in its discretion, imposes conditions,
restrictions or contingencies with respect to such shares in the applicable
Award Agreement.
Section 7.5. Performance-Based Awards. The Plan Administrator may award
performance-based Restricted Stock Units that becomes vested (or for which
vesting is accelerated) upon the achievement of Performance Targets established
pursuant to the requirements of Section 8.4 by the Plan Administrator. The Plan
Administrator may specify the number of shares that will vest upon the
achievement of different levels of performance. Except as otherwise provided by
the Plan Administrator, achievement of maximum target levels during the
Performance Cycle shall result in the Participant's receipt of the full
performance-based Restricted Stock Unit Award. For achievement of the minimum
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<PAGE> 11
target, but less than the maximum target, the Plan Administrator may establish a
portion of the Award that the Participant is entitled to receive. Any
performance-based Restricted Stock Unit that is not earned by the end of a
Performance Cycle shall be forfeited unless the Plan Administrator provides
otherwise in the applicable Award Agreement.
Section 7.6. Termination of Employment. Unless the applicable Award
Agreement provides for vesting upon death, disability, retirement or other
termination of employment, upon any such termination of employment of a
Participant prior to vesting of Restricted Stock, all outstanding and unvested
Awards of Restricted Stock to such Participant shall be canceled, shall not vest
and shall be returned to the Company.
ARTICLE VIII. PERFORMANCE SHARE AWARDS
Section 8.1. Awards Granted by Plan Administrator. Coincident with or
following designation for participation in the Plan, a person eligible to
participate in the Plan may be granted Performance Shares. Certificates
representing Performance Shares shall be issued to the Participant effective as
of the date of the Award. Holders of Performance Shares shall have all of the
voting, dividend and other rights of stockholders of the Company, subject to the
terms of any Award Agreement.
Section 8.2. Amount of Award. The Plan Administrator shall establish a
maximum amount of a Participant's Award, which amount shall be denominated in
shares of Common Stock.
Section 8.3. Communication of Award. Written notice of the maximum
amount of a Participant's Award and the Performance Cycle determined by the Plan
Administrator, if any, shall be given to a Participant as soon as practicable
after approval of the Award by the Plan Administrator. The grant of Performance
Shares shall be evidenced by a written Award Agreement, executed by the Company
and the recipient of Performance Shares, in such form as the Plan Administrator
may from time to time determine, providing for the terms of such grant.
Section 8.4. Amount of Award Payable. Performance Shares may be granted
based upon past performance or future performance. In addition to any other
restrictions the Plan Administrator may place on Performance Shares, the Plan
Administrator may, in its discretion, provide that Performance Shares shall vest
upon the satisfaction of Performance Targets to be achieved during an applicable
Performance Cycle. Failure to satisfy the Performance Targets may result, in the
Plan Administrator's discretion as set forth in an Award Agreement, in the
forfeiture of the Performance Shares by the Participant and the return of such
shares to the Company, or have any other consequence as determined by the Plan
Administrator. Multiple Performance Targets may be used and the components of
multiple Performance Targets may be given the same or different weight in
determining the amount of an Award earned, and may relate to absolute
performance or relative performance measured against other groups, units,
individuals or entities. The Plan Administrator may also establish that none, a
portion or all of a Participant's Award will vest (subject to Section 8.6) for
performance which falls below the Performance Target applicable to such Award.
Certificates representing Performance Shares shall bear a legend restricting
their transfer and requiring the forfeiture of the shares to the Company if any
Performance Targets or other conditions to vesting are not met. The Plan
Administrator may also require a Participant to deliver certificates
representing unvested Performance Shares to the Company in escrow until the
Performance Shares vest.
Section 8.5. Adjustments. At any time prior to vesting of a Performance
Share, the Plan Administrator may adjust previously established Performance
Targets or other terms and conditions to reflect events such as changes in laws,
regulations, or accounting practice, or mergers, acquisitions, divestitures or
any other event determined by the Plan Administrator.
Section 8.6. Payments of Awards. Following the conclusion of each
Performance Cycle, the Plan Administrator shall determine the extent to which
Performance Targets have been attained, and the satisfaction of any other terms
and conditions with respect to the vesting of an Award relating to such
Performance Cycle. Subject to the provisions of Section 8.3, to the extent the
Plan Administrator determines Performance Shares have vested, the Company shall
issue to the Participant certificates representing vested shares free of any
legend regarding Performance Targets or forfeiture in exchange for such
Participant's legended certificates.
Section 8.7. Termination of Employment. Unless the Award Agreement
provides for vesting upon death, disability, retirement or other termination of
employment, upon any such termination of employment of a Participant prior to
vesting of Performance Shares, all outstanding and unvested Awards of
Performance Shares to such Participant shall be canceled, shall not vest and
shall be returned to the Company.
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<PAGE> 12
Section 8.8. Transfer Restriction. Unless otherwise agreed to by the
Plan Administrator in an Award Agreement, any Award Agreement providing for the
issuance of Performance Shares to any person who, at the time of grant, is
subject to the restrictions of Section 16(b) of the Exchange Act, shall provide
that such Common Stock cannot be resold for a period of six months following the
grant of such Performance Shares.
ARTICLE IX. PERFORMANCE UNITS
Section 9.1. Awards Granted by Plan Administrator. Coincident with or
following designation for participation in the Plan, a person eligible to
participate in the Plan may be granted the right to receive value for
performance units, denominated in dollars or shares of Common Stock at the end
of a Performance Cycle ("Performance Units"). The date a Performance Unit is
granted shall mean the date selected by the Plan Administrator as of which the
Plan Administrator allots a specified dollar amount or number of shares to a
Participant pursuant to the Plan.
Section 9.2. Amount of Award. The Plan Administrator shall establish a
maximum amount of a Participant's Award, which amount shall be denominated in
dollars or shares of Common Stock. Performance Units shall be paid in shares of
Common Stock unless the Plan Administrator provides in the Award Agreement for
payment in cash or a combination of shares of Common Stock and cash. Performance
Units denominated in dollars shall be paid the number of shares of Common Stock
determined by dividing the dollar denominated value of a Performance Unit by the
Fair Market Value of a share of Common Stock on the effective date of the grant.
If a cash payment is made for a Performance Unit denominated in shares of Common
Stock, the cash payment per share shall be equal to the Fair Market Value of a
share of Common Stock on the date of vesting.
Section 9.3. Communication of Award. Written notice of the maximum
amount of a Participant's Award and the Performance Cycle determined by the Plan
Administrator, if any, shall be given to a Participant as soon as practicable
after approval of the Award by the Plan Administrator. The grant of Performance
Units shall be evidenced by a written Award Agreement, executed by the Company
and the recipient of Performance Units, in such form as the Plan Administrator
may from time to time determine, providing for the terms of such grant.
Section 9.4. Amount of Award Payable. Performance Units may be granted
based upon past performance or future performance. In addition to any other
restrictions the Plan Administrator may place on Performance Units, the Plan
Administrator may, in its discretion, provide that Performance Units shall vest
upon the satisfaction of Performance Targets to be achieved during an applicable
Performance Cycle. Failure to satisfy the Performance Targets may result, in the
Plan Administrator's discretion as set forth in an Award Agreement, in the
forfeiture of the Performance Units by the Participant, or have any other
consequence as determined by the Plan Administrator. Multiple Performance
Targets may be used and the components of multiple Performance Targets may be
given the same or different weight in determining the amount of an Award earned,
and may relate to absolute performance or relative performance measured against
other groups, units, individuals or entities. The Plan Administrator may also
establish that none, a portion or all of a Participant's Award will vest
(subject to Section 9.6) for performance which falls below the Performance
Target applicable to such Award.
Section 9.5. Adjustments. At any time prior to vesting of a Performance
Unit, the Plan Administrator may adjust previously established Performance
Targets or other terms and conditions to reflect events such as changes in laws,
regulations, or accounting practice, or mergers, acquisitions, divestitures or
any other event determined by the Plan Administrator.
Section 9.6. Payments of Awards. Following the conclusion of each
Performance Cycle, the Plan Administrator shall determine the extent to which
performance targets have been attained, and the satisfaction of any other terms
and conditions with respect to the vesting of an Award relating to such
Performance Cycle. Subject to the provisions of Section 9.3, to the extent the
Plan Administrator determines Performance Units have vested, the Company shall
issue to the Participant certificates representing vested shares, cash payment,
or a combination of both as provided in the applicable Award Agreement unless
the Award Agreement for such Performance Units allows the Plan Administrator or
the Participant to defer delivery of such Common Stock or cash payment.
Section 9.7. Termination of Employment. Unless the Award Agreement
provides for vesting upon death, disability, retirement or other termination of
employment, upon any such termination of employment of a Participant prior to
vesting of Performance Unit, all outstanding and unvested Awards of Performance
Shares to such Participant shall be canceled and shall not vest.
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ARTICLE X. MISCELLANEOUS
Section 10.1. General Restriction. Each Award under the Plan shall be
subject to the requirement that, if at any time the Plan Administrator shall
determine that (i) the listing, registration or qualification of the shares of
Common Stock which is the subject of such Award is necessary under the rules and
regulations of any securities exchange or under any state or federal law, (ii)
the consent or approval of any government regulatory body, or (iii) an agreement
by the grantee of an Award with respect to the disposition of shares of Common
Stock is necessary or desirable as a condition of, or in connection with, the
granting of such Award or the issue or purchase of shares of Common Stock
thereunder, such Award may not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or agreement shall have
been effected or obtained free of any conditions not acceptable to the Plan
Administrator.
Section 10.2. Non-Assignability. No Award under the Plan shall be
assignable or transferable by the recipient thereof, except by will or by the
laws of descent and distribution. During the life of the recipient, such Award
shall be exercisable only by such person or by such person's guardian or legal
representative.
Section 10.3. Withholding Taxes. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the grantee to remit to the Company an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. Alternatively, the Company may issue, transfer or vest only such number
of shares of the Company net of the number of shares sufficient to satisfy the
withholding tax requirements. For withholding tax purposes, the shares of Common
Stock shall be valued on the date the withholding obligation is incurred. Unless
the Plan Administrator provides otherwise in the applicable Award Agreement,
Participants may elect to satisfy tax withholding obligations through the
surrender of shares of Common Stock which the Participant already owns or
through the surrender of shares of Common Stock to which the Participant is
otherwise entitled under the Plan.
Section 10.4. Right to Terminate Employment. Nothing in the Plan or in
any agreement entered into pursuant to the Plan shall confer upon any
Participant the right to continue in the employment of the Company or affect any
right which the Company may have to terminate the employment of such
Participant.
Section 10.5. Non-Uniform Determinations. The Plan Administrator's
determinations under the Plan (including without limitation determinations of
the persons to receive Awards, the form, amount and timing of such Awards, the
terms and provisions of such Awards and the agreements evidencing the same) need
not be uniform and may be made by it selectively among persons who receive, or
are eligible to receive, Awards under the Plan, whether or not such persons are
similarly situated.
Section 10.6. Rights as a Stockholder. Unless otherwise provided in the
Plan, the recipient of any Award under the Plan shall have no rights as a
stockholder with respect thereto unless and until certificates for shares of
Common Stock are issued to him.
Section 10.7. Definitions. In this Plan the following definitions shall
apply:
(a) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with Nuevo Energy Company.
(b) "Award" shall mean a grant of Stock Options, Incentive
Stock Options, Bonus Stock, SARs, Restricted Stock, Restricted Stock
Units, Performance Shares or Performance Units under the Plan.
(c) "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include any
successor provision of the Code.
(d) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(e) "Fair Market Value" as of any date and in respect of any
share of Common Stock means the closing price on such date or on the
next business day, if such date is not a business day, of a share of
Common Stock reflected in the consolidated trading tables of The Wall
Street Journal (presently the NYSE - Composite Transactions) or any
other publication selected by the Plan Administrator, provided that, if
shares of
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Common Stock shall not have been traded on the New York Stock Exchange
for more than 10 days immediately preceding such date or if deemed
appropriate by the Plan Administrator for any other reason, the Fair
Market Value of shares of Common Stock shall be as determined by the
Plan Administrator in such other manner as it may deem appropriate. In
no event shall the Fair Market Value of any share of Common Stock be
less than its par value.
(f) "Non-Employee Director" shall mean a director who (i) is
not an officer of the Company or a parent or Subsidiary of the Company,
or otherwise employed by the Company or parent or Subsidiary of the
Company; (ii) does not receive compensation, either directly or
indirectly, from the Company or a parent or Subsidiary of the Company,
for services rendered as a consultant or in any capacity other than as
a director, except for an amount not exceeding $60,000; (iii) does not
possess an interest in any transaction for which disclosure would be
required under Item 404(a) of Regulation S-K of the Securities Act of
1933, as amended ("Securities Act"); or (iv) is not engaged in a
business relationship for which disclosure would be required pursuant
to Item 404(b) of Regulation S-K of the Securities Act.
(g) "Option" means a Stock Option or Incentive Stock Option.
(h) "Option Price" means the purchase price per share of
Common Stock deliverable upon the exercise of a Stock Option or
Incentive Stock Option.
(i) "Outside Director" means a director of the Company who is
an "outside director" within the meaning of Section 162(m) of the Code
and the regulations promulgated thereunder.
(j) "Participant" means a director, executive officer, other
key employee or consultant of the company or any Subsidiary who holds
an outstanding Award granted under the Plan
(k) "Performance Cycle" means the period of time, if any, as
specified by the Plan Administrator over which Performance Shares are
to be vested.
(l) "Performance Target" means those targets established by
the Plan Administrator that relate to corporate, group, unit or
individual performance and are established in terms of market price of
common stock, cash flow or cash flow per share, reserve value or
reserve value per share, net asset or net asset value per share,
earnings, or, to the extent that the Award is not intended to qualify
as performance-based compensation (as that term is used for purposes of
Section 162(m) of the Code), such other measures or standards
determined by the Plan Administrator.
(m) "Restricted Period" means the period of time for which
Restricted Stock is subject to forfeiture pursuant to the Plan.
(n) "Subsidiary" means any corporation or other entity of
which at least 50% of the voting securities entitled to vote generally
in an election of directors are owned by the Company directly or
through one or more other corporations or other entities, each of which
is also a Subsidiary. With respect to non-corporate entities,
Subsidiary shall mean an entity managed or controlled by the Company or
any Subsidiary and with respect to which the Company or any Subsidiary
is allocated more than half of the profits and losses thereof.
Section 10.8. Leaves of Absence. The Plan Administrator shall be
entitled to make such rules, regulations and determinations as it deems
appropriate under the Plan in respect of any leave of absence taken by the
recipient of any Award. Without limiting the generality of the foregoing, the
Plan Administrator shall be entitled to determine (i) whether or not any such
leave of absence shall constitute a termination of employment within the meaning
of the Plan and (ii) the impact, if any, of any such leave of absence on Awards
under the Plan theretofore made to any recipient who takes such leave of
absence.
Section 10.9. Newly Eligible Employees. The Plan Administrator shall be
entitled to make such rules, regulations, determinations and Awards as it deems
appropriate in respect of any employee who becomes eligible to participate in
the Plan or any portion thereof after the commencement of an Award or incentive
period.
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<PAGE> 15
Section 10.10. Adjustments. In the event of any change in the
outstanding Common Stock by reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Plan Administrator may appropriately adjust the number
of shares of Common Stock which may be issued under the Plan, the number of
shares of Common Stock subject to Options, Bonus Stock, SARs, Restricted Stock,
Restricted Stock Units, Performance Shares or Performance Units theretofore
granted under the Plan, and any and all other matters deemed appropriate by the
Plan Administrator.
Section 10.11. Changes in the Company's Capital Structure.
(a) The existence of outstanding Options, Bonus Stock, SARs, Restricted
Stock, Restricted Stock Units, Performance Shares or Performance Units shall not
affect in any way the right or power of the Company or its stockholders to make
or authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(b) If, while there are outstanding Options, the Company shall effect a
subdivision or consolidation of shares or other increase or reduction in the
number of shares of the Common Stock outstanding without receiving compensation
therefor in money, services or property, then, subject to the provisions, if
any, in the Award Agreement (a) in the event of an increase in the number of
such shares outstanding, the number of shares of Common Stock then subject to
Options hereunder shall be proportionately increased; and (b) in the event of a
decrease in the number of such shares outstanding the number of shares then
available for Option hereunder shall be proportionately decreased.
(c) After a merger of one or more corporations into the Company, or
after a consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, (i) each holder of an outstanding
Option shall, at no additional cost, be entitled upon exercise of such Option to
receive (subject to any required action by stockholders) in lieu of the number
of shares as to which such Option shall then be so exercisable, the number and
class of shares of stock, other securities or consideration to which such holder
would have been entitled to receive pursuant to the terms of the agreement of
merger or consolidation if, immediately prior to such merger or consolidation,
such holder had been the holder of record of a number of shares of the Company
equal to the number of shares as to which such Option had been exercisable and
(ii) unless otherwise provided by the Plan Administrator, the number of shares
of Common Stock, other securities or consideration to be received with respect
to unvested Bonus Stock, SARs, Restricted Stock, Restricted Stock Units,
Performance Shares and Performance Units shall continue to be subject to the
Award Agreement, including vesting provisions hereof.
(d) If the Company is about to be merged into or consolidated with
another corporation or other entity under circumstances where the Company is not
the surviving corporation, or if the Company is about to sell or otherwise
dispose of substantially all of its assets to another corporation or other
entity while unvested Bonus Stock, SARs, Restricted Stock, Restricted Stock
Units, Performance Shares or Performance Units or unexercised Options remain
outstanding, then the Plan Administrator may direct that any of the following
shall occur:
(i) If the successor entity is willing to assume the
obligation to deliver shares of stock or other securities after the
effective date of the merger, consolidation or sale of assets, as the
case may be, each holder of an outstanding Option shall be entitled to
receive, upon the exercise of such Option and payment of the Option
Price, in lieu of shares of Common Stock, such shares of stock or other
securities as the holder of such Option would have been entitled to
receive had such Option been exercised immediately prior to the
consummation of such merger, consolidation or sale, and the terms of
such Option and any tandem SAR associated with such Option shall apply
as nearly as practicable to the shares of stock or other securities
purchasable upon exercise of the Option following such merger,
consolidation or sale of assets;
(ii) The Plan Administrator may waive any limitations set
forth in or imposed pursuant to this Plan or any Award Agreement with
respect to such Option and any tandem SAR, Bonus Stock, SAR, Restricted
Stock, Restricted Stock Unit, Performance Share or Performance Unit
such that (A) such Option and tandem SAR shall become exercisable prior
to the record or effective date of such merger, consolidation or sale
of assets or (B) the vesting of such Bonus Stock, SAR, Restricted
Stock, Restricted Stock
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<PAGE> 16
Unit, Performance Share or Performance Unit shall occur upon such
merger, consolidation or sale of assets; and/or
(iii) The Plan Administrator may cancel all outstanding
Options and tandem SARs as of the effective date of any such merger,
consolidation or sale of assets provided that prior notice of such
cancellation shall be given to each holder of an Option at least 30
days prior to the effective date of such merger, consolidation or sale
of assets, and each holder of an Option shall have the right to
exercise such Option or any tandem SARs in full during a period of not
less than 30 days prior to the effective date of such merger,
consolidation or sale of assets.
(e) Except as herein provided, the issuance by the Company of Common
Stock or any other shares of capital stock or securities convertible into shares
of capital stock, for cash, property, labor done or other consideration, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock then subject to outstanding
Options.
Section 10.12. Amendment of the Plan. Subject to Section 3.11 and
Section 10.13, the Board of Directors may, without further approval by the
stockholders and without receiving further consideration from the Participants,
amend this Plan or condition or modify Awards under this Plan, including
increases to the number of shares which may be covered by Awards under this
Plan.
Section 10.13. No Loss of Rights of Grantee of an Award. Nothing in
this Plan shall give the Plan Administrator or any other person the right, power
or authority to change, amend, alter or repeal the terms of any Award granted
under this Plan, except as otherwise expressly set forth in the grant of such
Award, without the prior written consent of the grantee of such Award.
Section 10.14. Dividends and Dividend Equivalents. An Award Agreement
(including without limitation an Option or SAR Award) may provide the
Participant with the right to receive dividend payments or dividend equivalent
payments with respect to Common Stock subject to the Award Agreement (both
before and after the Common Stock subject to the Award Agreement is earned,
vested, or acquired), which payments may be either made currently or credited to
an account for the Participant, and may be settled in cash or Common Stock as
determined by the Plan Administrator. Any such settlements, and any such
crediting of dividends or dividend equivalents or reinvestment in shares of
Common Stock, may be subject to such conditions, restrictions and contingencies
as the Plan Administrator shall establish, including the reinvestment of such
credited amounts in Common Stock equivalents.
Section 10.15. Form and Time of Elections. Unless otherwise specified
herein, each election required or permitted to be made by any Participant or
other person entitled to benefits under the Plan, and any permitted
modification, or revocation thereof, shall be in writing filed with the Plan
Administrator at such times, in such form, and subject to such restrictions and
limitations, not inconsistent with the terms of the Plan, as the Plan
Administrator shall require.
Section 10.16. Performance Based Compensation. The Plan Administrator
shall designate all Awards intended to qualify as performance based compensation
under Section 162(m) of the Code and shall not be entitled to exercise any
discretion otherwise authorized under this Plan with respect to Awards
designated as performance based compensation if the ability to exercise such
discretion or the exercise of such discretion itself would cause the
compensation attributable to such Awards to fail to qualify as performance based
compensation.
Section 10.17. Deferral. The Plan Administrator may provide in any
Award Agreement that the Plan Administrator or the Participant may, upon the
vesting of any Award under this Plan, defer the receipt of any shares of Common
Stock or cash to be paid to the Participants as a result of the vesting of an
Award under this Plan.
The foregoing is a true and correct copy of the Nuevo Energy Company
1999 Stock Incentive Plan as approved by the Board of Directors on March 30,
1999 and the stockholders the annual meeting on May 12, 1999.
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<PAGE> 1
NUEVO ENERGY COMPANY EMPLOYEE STOCK PURCHASE PLAN
(Effective July 1, 1998)
1. PURPOSE
The Nuevo Energy Company Employee Stock Purchase Plan (the "Plan") is
designed to encourage and assist employees of Nuevo Energy Company ("Nuevo") and
Subsidiaries (as defined in Section 4) (hereinafter collectively referred to as
the "Company"), where permitted by applicable laws and regulations, to acquire
an equity interest in Nuevo through the purchase of shares of common stock, $.01
par value, of Nuevo ("Common Stock"). It is intended that this Plan shall
constitute an "employee stock purchase plan" within the meaning of Section 423
of the Internal Revenue Code of 1986, as amended (the "Code").
2. ADMINISTRATION OF THE PLAN
The Plan shall be administered and interpreted by the Compensation
Committee (the "Committee") appointed by the Board of Directors of Nuevo (the
"Board"), which Committee shall consist of at least two (2) "non-employee
directors" within the meaning of Rule 16b-3 ("Rule l6b-3") promulgated by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Committee shall supervise the
administration and enforcement of the Plan according to its terms and provisions
and shall have complete discretion and all powers necessary to accomplish these
purposes and discharge its duties hereunder including, but not by way of
limitation, the power to (i) employ and compensate agents of the Committee for
the purpose of administering the accounts of participating employees; (ii)
construe or interpret the Plan; (iii) determine all questions of eligibility;
and (iv) compute the amount and determine the manner and time of payment of all
benefits according to the Plan.
The Committee may act by decision of a majority of its members at a regular
or special meeting of the Committee or by decision reduced to writing and signed
by all members of the Committee without holding a formal meeting.
3. NATURE AND NUMBER OF SHARES
The Common Stock subject to issuance under the terms of the Plan shall be
shares of Nuevo's authorized but unissued shares or previously issued shares
reacquired and held by Nuevo. The aggregate number of shares which may be issued
under the Plan shall not exceed 25,000 shares of Common Stock. All shares of
Common Stock purchased under the Plan shall be counted against the 25,000 share
limitation.
In the event of any reorganization, stock split, reverse stock split, stock
dividend, combination of shares, merger, consolidation, offering of rights or
other similar change in the capital structure of Nuevo, the Committee may make
such adjustment, if any, as it deems appropriate in the number, kind and
purchase price of the shares of Common Stock available for purchase under the
<PAGE> 2
Plan and in the maximum number of shares which may be issued under the Plan,
subject to the approval of the Board and in accordance with Section 20.
4. ELIGIBILITY REQUIREMENTS
Each "Employee" (as hereinafter defined), except as described in the next
following paragraph, shall become eligible to participate in the Plan in
accordance with Section 5 on the first "Enrollment Date" (as defined therein)
following the day he becomes an Employee. Participation in the Plan is
voluntary.
The following Employees are not eligible to participate in the Plan:
(i) Employees who are "highly compensated employees," as defined in
Code Section 414(q) and who participate in the Nuevo Energy Company
Deferred Compensation Plan; and
(ii) Employees who are customarily employed by the Company less than
twenty (20) hours per week or less than five (5) months in any calendar
year.
Notwithstanding anything herein to the contrary, an Employee may not
participate in this Plan if such Employee would, immediately upon enrollment in
the Plan, own directly or indirectly, or hold options or rights to acquire, an
aggregate of five percent (5%) or more of the total combined voting power or
value of all outstanding shares of Common Stock of all classes of Nuevo or any
subsidiary (in determining stock ownership of an individual, the rules of Code
Section 424(d) shall be applied, and the Committee may rely on representations
of fact made to it by the employee and believed by it to be true).
"Employee" shall mean any individual employed by Nuevo or any Subsidiary
(as hereinafter defined). "Subsidiary" shall mean any corporation (a) which is
in an unbroken chain of corporations beginning with Nuevo if, on or after the
Effective Date, each of the corporations other than the last corporation in the
chain owns stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain and (b) which has adopted the Plan with the approval of the Board.
5. ENROLLMENT
For purposes of this Plan, the first day of each Purchase Period (as
defined in Section 6) shall be an "Enrollment Date." Each eligible Employee of
Nuevo or any Subsidiary as of March 1, 1998 (the "Effective Date" herein) may
enroll in the Plan as of the Effective Date. Each other eligible Employee of
Nuevo or a participating Subsidiary who thereafter becomes eligible to
participate may enroll in the Plan on the first Enrollment Date following the
date he first meets the eligibility requirements of Section 4. Any eligible
Employee not enrolling in the Plan when first eligible may enroll in the Plan on
any subsequent Enrollment Date. In order to enroll or re-enroll, an eligible
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<PAGE> 3
Employee must complete, sign and submit the appropriate form to the person
designated by the Committee prior to the applicable Enrollment Date.
6. METHOD OF PAYMENT
Payment for shares of Common Stock is to be made as of the applicable
"Purchase Date" (as defined in Section 9) with Employee contributions, which
shall be made through payroll deductions on an after-tax basis (with no right of
prepayment) over the Plan's designated purchase period (the "Purchase Period"),
with the first such deduction commencing with the first payroll period ending
after the Enrollment Date. Each Purchase Period under the Plan shall be a period
of one month beginning on the first day of each calendar month and ending on the
last day of such month or such other period as the Committee may prescribe. The
initial Purchase Period shall commence on the Effective Date. Each
participating Employee (hereinafter referred to as a "Participant") will
authorize such deductions from his pay for each payroll period during the
Purchase Period and such amounts will be deducted in conformity with his
employer's payroll deduction schedule.
Each Participant may elect to contribute to his account from one percent
(1%) to twenty percent (20%) of his Compensation each payroll period, but not
less than $10 during any payroll period (or such other dollar amounts and
percentages as the Committee may establish from time to time before an
Enrollment Date for all purchases to occur during the relevant Purchase Period).
In establishing other dollar amounts and percentages of permitted contributions,
the Committee may take into account the "Maximum Share Limitation" (as defined
in Section 8). The rate of contribution shall be designated by the Participant
in the enrollment form.
"Compensation" shall mean wages as defined in Code Section 3401(a) and all
other payments of compensation to a Participant by Nuevo (in the course of
Nuevo's trade or business) for which Nuevo is required to furnish the
Participant a written statement under Code Sections 6041(d) and 6051(a)(3).
Compensation must be determined without regard to any rules under Code Section
3401(a) that limit the remuneration included in wages based on the nature or
location of the employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)). Notwithstanding anything herein
to the contrary, Compensation shall not include reimbursements or other expense
allowances, fringe benefits (cash and noncash), moving expenses, deferred
compensation and welfare benefits. Compensation shall include amounts that are
not includible in the gross income of a Participant by reason of the application
of Code Sections 125, 402(e)(3), 402(h) or 403(b).
A Participant may elect to increase or decrease the rate of contribution
effective as of the first day of the next Purchase Period by giving prior
written notice to the person designated by the Committee on the appropriate
form. A Participant may not elect to increase or decrease the rate of
contribution during a Purchase Period. A Participant may suspend contributions
during the Purchase Period by giving prior written notice to the person
designated by the Committee on the appropriate form, at least ten (10) days
prior to the last day of the Purchase Period. If a Participant elects to suspend
his contributions, any contributions made during the Purchase Period prior to
such suspension will be used to purchase stock at the end of the Purchase
Period. Any Participant who
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<PAGE> 4
suspends contributions during any Purchase Period cannot resume contributions
during such Purchase Period and must re-enroll in the Plan in order to
participate in a subsequent Purchase Period.
7. CREDITING OF CONTRIBUTIONS AND DIVIDENDS
Contributions shall be credited to a Participant's account as soon as
administratively feasible after payroll withholding. Dividends on shares of
Common Stock held in a Participant's account will be credited to such
Participant's account and used to purchase shares of Common Stock at, the market
price on the date such shares are purchased. All Participants' accounts shall be
held by a bank or financial institution designated by the Committee for this
purpose (the "Custodian").
8. GRANT OF RIGHT TO PURCHASE SHARES ON ENROLLMENT
Enrollment in the Plan by an Employee on an Enrollment Date will constitute
the grant by Nuevo to the Participant of the right to purchase shares of Common
Stock under the Plan. Re-enrollment by a Participant in the Plan will constitute
a grant by Nuevo to the Participant of a new opportunity to purchase shares of
Common Stock on the Enrollment Date on which such re-enrollment occurs. A
Participant will have shares of Common Stock purchased for him on the applicable
Purchase Date, and he will automatically be re-enrolled in the Plan on the next
Enrollment Date, unless, prior to the next such Enrollment Date, such
Participant (a) terminates employment, (b) dies, (c) suspends his contributions
to the Plan and does not re-enroll, or (d) notifies the person designated by the
Committee on the appropriate form that he elects not to re-enroll.
Each right to purchase shares of Common Stock under the Plan shall have the
following terms:
(i) the right to purchase shares of Common Stock during a particular
Purchase Period shall expire on the earlier of, (A) the completion of the
purchase of shares of Common Stock on the Purchase Date applicable to the
Purchase Period, or (B) the date on which participation of such Participant
in the Plan terminates for any reason;
(ii) payment for shares of Common Stock purchased will be made only
through Participant contributions and the crediting of dividends, if
applicable, in accordance with Section 7;
(iii) purchase of shares of Common Stock will be accomplished only in
accordance with Section 9;
(iv) the purchase price per share of Common Stock will be determined
as provided in Section 9;
(v) the right to purchase shares of Common Stock (taken together with
all other such rights then outstanding under this Plan and under all other
similar stock purchase plans
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<PAGE> 5
of Nuevo or any Subsidiary) will in no event give a Participant the right
to purchase Common Stock at a rate which exceeds $25,000 in fair market
value of the Common Stock (determined on the applicable Grant Date) for
each calendar year in which an option to purchase shares of Common Stock
granted to such Participant is outstanding at any time. Such limit shall be
referred to herein as the "Maximum Share Limitation"; and
(vi) the right to purchase shares of Common Stock will in all respects
be subject to the terms and conditions of the Plan, as interpreted by the
Committee from time to time.
9. PURCHASE OF SHARES
The right to purchase shares of Common Stock granted by Nuevo under the
Plan is for the term of a Purchase Period. The Fair Market Value of the Common
Stock to be purchased during such Purchase Period will be determined on the
first trading day during the Purchase Period or such other trading date
designated by the Committee (the "Grant Date"). The Fair Market Value of the
Common Stock will again be determined in the same manner on the last trading day
during the Purchase Period or such other trading date designated by the
Committee (the "Purchase Date"); however, in no event shall the Committee, in
the exercise of its discretion, designate a Purchase Date beyond five (5) years
from the related Grant Date or otherwise fail to meet the requirements of
Section 423(b)(7) of the Code. These dates constitute the date of grant and the
date of exercise for valuation purposes of Section 423 of the Code.
"Fair Market Value" means the closing price for a share of Common Stock as
reported in The Wall Street Journal's NYSE-Composite Transactions listing for
such day (corrected for obvious typographical errors), or if shares of Common
Stock are not reported in such listing, the closing price on the largest
national securities exchange (based on the aggregate dollar value of securities
listed) on which such shares are listed or traded, or if such shares are not
listed or traded on any national securities exchange, then the average of the
reported "high" and "low" sales prices for such shares in the over-the-counter
market, as reported on the National Association of Securities Dealers Automated
Quotations System, or, if such prices shall not be reported thereon, the average
between the closing bid and asked prices so reported, or, if such prices shall
not be reported, then the average closing bid and asked prices reported by the
national Quotation Bureau Incorporated, or, in all other cases, the value
established by the Committee in good faith.
As of the Purchase Date, the Custodian shall apply the contributions to
each Participant's account during the Purchase Period to the purchase of shares
of Common Stock. On the Enrollment Date of each Purchase Period, a Participant
shall be deemed to have been granted an option to purchase a maximum number of
shares of Common Stock (the "Enrollment Date Maximum") equal to an amount
determined as follows: an amount equal to (i) that percentage of the
Participant's base pay which he has elected to have withheld (but not in any
case in excess of 20%) multiplied by (ii) the Participant's base pay during the
Purchase Period (iii) divided by 85% of the Fair Market Value of the stock of
the Company on the applicable Enrollment Date. The number of shares of Common
Stock to be purchased for each participant shall be the lesser of (i) the amount
determined by dividing (a) the amount contributed to the Participant's account
during the Purchase Period, by (b) the purchase price for the Purchase Period or
(ii) the Enrollment Date Maximum. the purchase price for the shares of Common
Stock purchased during a Purchase Period shall be eighty-five percent (85%) of
the Fair Market Value of Common Stock on the Purchase Date.
Certificates evidencing shares of Common Stock purchased shall be delivered
to the Custodian to be held in each Participant's account as soon as
administratively feasible after the
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<PAGE> 6
Purchase Date. Notwithstanding the foregoing, Participants shall be treated as
the record owners of their shares of Common Stock effective as of the Purchase
Date. Shares of Common Stock that are held by the Custodian shall be held in
book entry form. If for any reason the purchase of shares of Common Stock with a
Participants allocations to the Plan exceeds or would exceed the Maximum Share
Limitation, such excess amounts shall be refunded to the Participant as soon as
practicable after such excess has been determined to exist.
If as of any Purchase Date the shares of Common Stock authorized for
purchase under the Plan are exceeded, enrollments shall be reduced
proportionately to eliminate the excess. Any funds that cannot be applied to the
purchase of shares of Common Stock due to excess enrollment shall be refunded as
soon as administratively feasible. The Committee in its discretion may also
provide that excess enrollments may be carried over to the next Purchase Period
under this Plan or any successor plan according to the regulations set forth
under Section 423 of the Code.
10. WITHDRAWAL OF SHARES AND SALE OF SHARES
(a) Withdrawal of Shares. A Participant may elect to withdraw (without
withdrawing from participation in the Plan) shares of Common Stock in his
account at any time after the expiration of one year from the Purchase Date
on which such shares were purchased by giving notice to the Custodian. Upon
receipt of such notice, the Custodian will arrange for the issuance and
delivery of certificates for such shares held in the Participant's account
as soon as administratively feasible. The Participant may be charged a
reasonable fee for each such certificate.
(b) Sale of Shares. A Participant may sell shares of Common Stock
which are held in his account at any time after the expiration of one year
from the Purchase Date on which such shares were purchased (unless such
transaction would be deemed to be matchable for short-swing liability
purposes under Section 16(b) of the Exchange Act) by giving notice to the
Custodian. Upon receipt of such notice, the Custodian will arrange for the
sale of such Participant's shares of Common Stock. Proceeds of a sale of
Common Stock held in a Participant's account shall be paid to the
Participant, less any fees related to the sale as described in Section 16.
11. TERMINATION OF PARTICIPATION
The right to participate in the Plan terminates immediately when a
Participant ceases to be an Employee for any reason whatsoever (including death,
unpaid disability or when the Participants employer ceases to be a Subsidiary)
or the Participant otherwise becomes ineligible. Participation terminates
immediately after the Purchase Date if the Participant is not in the Plan for
the next Purchase Period or if the Participant has suspended contributions
during any Purchase Period and has not in the Plan for the next Purchase Period.
After termination of participation for any reason, any contributions made to the
Plan during the Purchase Period in which the termination of participation occurs
shall be used to purchase shares of Common Stock on the Purchase Date. With
respect to a termination of participation for reasons other than death, the
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<PAGE> 7
Committee shall direct the Custodian to pay to the Participant or his legal
representative cash amounts representing any fractional shares of Common Stock
credited to his account and (unless participation has resumed) to cause a
certificate for the number of whole shares of Common Stock held in his account
to be delivered to the Participant or his legal representative as soon as
administratively feasible after the expiration of one year from the Purchase
Date on which such shares were purchased. For purposes of the Plan, a
Participant is not deemed to have terminated his employment if he transfers
employment from Nuevo to a Subsidiary, or vice versa, or transfers employment
between Subsidiaries.
12. UNPAID LEAVE OF ABSENCE
Shares of Common Stock will be purchased for a Participant's account on the
Purchase Date next following commencement of an unpaid leave of absence by such
Participant. The number of shares of Common Stock to be purchased will be
determined by applying to the purchase the amount of the Participants
contributions made during the Purchase Period up to the commencement of such
unpaid leave of absence. If the Participant's unpaid leave of absence both
commences and terminates during the same Purchase Period and he has resumed
eligible employment prior to the Purchase Date related to that Purchase Period,
he may also resume contributions immediately, and shares of Common Stock will be
purchased for him on such Purchase Date as otherwise provided in Section 9.
13. DEATH
Each Participant may designate (in accordance with the procedure
established by the Custodian) one or more beneficiaries in the event of death
and may, in his sole discretion, change such designation at any time. Any such
designation shall be effective upon receipt by the Custodian and shall control
over any disposition by will or otherwise.
As soon as administratively feasible after the death of a Participant, the
Custodian shall pay to the Participant's designated beneficiaries or, in the
absence of such designation, to the executor, administrator or other legal
representative of the Participant's estate, cash amounts representing any
fractional shares of Common Stock credited to his account, and shall cause a
certificate for the number of whole shares of Common Stock held in the
Participant's account to be delivered to the Participant's designated
beneficiaries or, in the absence of such designation, to the executor,
administrator or other legal representative of the Participant's estate, as soon
as administratively feasible after the expiration of one year from the Purchase
Date on which such shares were purchased. Such payment shall relieve Nuevo of
further liability to the deceased Participant with respect to the Plan. If more
than one beneficiary is designated, each beneficiary shall receive an equal
portion of the account unless the Participant has given express contrary
instructions.
14. ASSIGNMENT
Except as provided in Section 13, the rights of a Participant under the
Plan will not be assignable or otherwise transferable by the Participant, other
than by will or the laws of descent and distribution. No purported assignment or
transfer of such rights of a Participant under the Plan,
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<PAGE> 8
whether voluntary or involuntary, by operation of law or otherwise, shall vest
in the purported assignee or transferee any interest or right therein
whatsoever, but immediately upon such assignment or transfer, or any attempt to
make the same, such rights shall terminate and become of no further affect. If
this provision is violated, the Participant's election to purchase Common Stock
shall terminate, and the only obligation of Nuevo remaining under the Plan will
be to pay to the person entitled thereto the amount then credited to the
Participant's account. No Participant may create a lien on any funds,
securities, rights or other property held for the account of the Participant
under the Plan, except to the extent that there has been a designation of
beneficiaries in accordance with the Plan, and except to the extent permitted by
will or the laws of descent and distribution if beneficiaries have not been
designated. A Participant's right to purchase shares of Common Stock under the
Plan shall be exercisable only during the Participant's lifetime and only by
him.
15. VOTING OF COMMON STOCK
The Custodian will vote the Common Stock held by it in accordance with
instructions received from Participants with respect to shares of Common Stock
credited to the Participants' accounts. The Custodian will transmit to
Participants all proxy material and other reports furnished by Nuevo to its
stockholders.
16. COSTS
All costs and expenses incurred in administering this Plan shall be paid by
Nuevo. Any (i) brokerage fees for the sale of shares of Common Stock purchased
under the Plan, or (ii) fees for registering shares of Common Stock held by the
Custodian in a Participant's name shall be paid by the Participant.
17. REPORTS
At the end of each calendar quarter, Nuevo shall provide or cause to be
provided to each Participant a report of his contributions and the number of
shares of Common Stock purchased with such contributions by that Participant on
each Purchase Date.
18. EQUAL RIGHTS AND PRIVILEGES
All eligible Employees shall have equal rights and privileges with respect
to the Plan so that the Plan qualifies as an "employee stock purchase plan"
within the meaning of Code Section 423 or any successor provision of the Code
and related regulations. Any provision of the Plan which is inconsistent with
Code Section 423 or any successor provision of the Code shall without further
act or amendment by Nuevo be reformed to comply with the requirements of Code
Section 423. This Section 18 shall take precedence over all other provisions in
the Plan.
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19. RIGHTS AS STOCKHOLDERS
A Participant will have no rights as a stockholder under the election to
purchase until he becomes a stockholder as herein provided. A Participant will
become a stockholder with respect to shares of Common Stock for which payment
has been completed as provided in Section 9.
20. AMENDMENT AND TERMINATION
The Board may amend or terminate the Plan at any time insofar as permitted
by law. No amendment shall be effective unless within one (1) year after it is
adopted by the Board it is approved by the stockholders of Nuevo.
(i) if and to the extent such amendment is required to be approved by
stockholders to continue the exemption provided for in Rule 16b-3; or
(ii) if and to the extent such amendment is required to be approved by
stockholders in order to cause the rights granted under the Plan to
purchase shares of Common Stock to meet the requirements of Section 423 of
the Code (or any successor provision).
The Plan shall terminate after all Common Stock issued under the Plan has
been purchased, unless terminated earlier by the Board or unless additional
Common Stock is issued under the Plan with the approval of the stockholders. In
the event the Plan is terminated, the Committee may elect to terminate all
outstanding rights to purchase shares of Common Stock under the Plan either
immediately or upon completion of the purchase of shares of Common Stock on the
next Purchase Date, unless the Committee has designated that the right to make
all such purchases shall expire on some other designated date occurring prior to
the next Purchase Date. If the rights to purchase shares of Common Stock under
the Plan are terminated prior to expiration, all funds contributed to the Plan
which have not been used to purchase shares of Common Stock shall be returned to
the Participants as soon as administratively feasible.
21. BOARD AND STOCKHOLDER APPROVAL; EFFECTIVE DATE
This Plan was approved by the Board. The Plan will become effective as of
March 1, 1998, upon approval by the holders of a majority of the shares of
outstanding Common Stock of Nuevo present, or represented, and entitled to vote
at the 1998 Annual Meeting of Stockholders.
22. GOVERNMENTAL APPROVALS OR CONSENTS
This Plan and any offering or sale made to Employees under it are subject
to any governmental approvals or consents that may be or become applicable in
connection therewith. Subject to the provisions of Section 20, the Board may
make such changes in the Plan and include such terms in any offering under the
Plan as may be desirable to comply with the rules or regulations of any
governmental authority.
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23. LISTING OF SHARES AND RELATED MATTERS
If at any time the Board or the Committee shall determine, based on opinion
of legal counsel, that the listing, registration or qualification of the shares
of Common Stock covered by the Plan upon any national securities exchange or
reporting system or under any state or federal law is necessary or desirable as
a condition of, or in connection with, the sale or purchase of shares of Common
Stock under the Plan, no shares of Common Stock will be sold, issued or
delivered unless and until such listing, registration or qualification shall
have been effected or obtained, or otherwise provided for, free of any
conditions not acceptable to legal counsel.
24. EMPLOYMENT RIGHTS
The Plan shall neither impose any obligation on Nuevo or on any Subsidiary
to continue the employment of any Participant, nor impose any obligation on any
Participant to remain the employ of Nuevo or of any Subsidiary.
25. WITHHOLDING OF TAXES
The Committee may make such provisions as it may deem appropriate for the
withholding of any taxes which it determines is required in connection with the
purchase of Common Stock under the Plan.
26. RESPONSIBILITY AND INDEMNITY
Neither Nuevo, the Board, the Committee, any subsidiary of Nuevo, nor any
member, officer, agent or employee of any of them, shall be liable to any
Participant under the Plan for any mistake of judgment or for any omission or
wrongful act unless resulting from gross negligence or willful misconduct. Nuevo
will indemnify and hold harmless the Board, the Committee, any subsidiary of
Nuevo, and any member, officer, agent or employee of any of them against any
claim, loss, liability or expense arising out of the Plan, except such as may
result from the gross negligence or willful misconduct of such entity or person.
27. GOVERNING LAW
The Plan and rights to purchase shares of Common Stock that may be granted
hereunder shall I be governed by and construed and enforced in accordance with
the laws of the state of Texas.
28. USE OF GENDER
The gender of words used in the Plan shall be construed to include
whichever may be appropriate under any particular circumstances of the
masculine, feminine or neuter genders.
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